Opinion
03 Civ. 5615 (MGC)
December 1, 2003
John B. Harris, Maureen Nakly, STILLMAN FRIEDMAN, P.C, New York, NY, for Plaintiff
David J. Molton, Samuel W. Braver, BUCHANAN INGERSOLL, New York, NY, for Defendants
OPINION
Defendants Florida Health Sciences Center, Inc. and the Bank of New York Trust Company of Florida, N.A. move to dismiss this action pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. In the alternative, defendants move to transfer the action to the United States District Court for the Middle District of Florida pursuant to 28 U.S.C. § 1404(a). For the following reasons, defendants' motion to transfer is granted.
Background
In 1992, the Hillsborough County Hospital Authority (HCHA), a public authority located in Hillsborough County, Florida, issued municipal bonds to fund the construction of Tampa General Hospital. The resolution that authorized the bond issue created a reserve account of approximately $12.9 million to fund interim interest payments. The resolution instructed HCHA to invest the reserve account and identified an acceptable debt rating for institutions HCHA could select to manage the account. The resolution also outlined a number of mandatory contract terms for any agreement that HCHA entered into relating to the investment of the account. These terms set requirements for interest payments, collateralization, and contract termination, among other matters.
HCHA designated First Florida Bank, N.A. (FFB) as trustee for the reserve account. Pursuant to its duties as trustee, FFB entered into an investment agreement with Societe Generale (SG), a French bank that has its United States headquarters in New York. Under the terms of the agreement, FFB transferred the $12.9 million to SG, which maintained the reserve account and paid FFB a guaranteed rate of interest of 7.01% on the funds. The agreement also obligated SG to provide FFB with collateral, in the form of government obligations, to secure the invested funds. SG agreed to monitor the value of the obligations on a weekly basis to assure that they adequately secured the reserve account, and to cure any deficiency by providing FFB with additional collateral. The parties agreed that the contract would terminate either on the date that the bonds were due and payable or on the "date that all Invested Funds are remitted to the Trustee."
In May of 2003 the bonds were refunded (approximately ten years before their date of maturity), and a new set of bonds were issued by a different authority, the Hillsborough County Industrial Development Authority. The entities involved in administering the hospital and the trust had also changed. Florida Health Sciences Center (FHSC), a private, not-for-profit Florida health care organization, had taken over management of Tampa General Hospital. The trustee, FFB, had merged with Barnett Bank in 1992. Barnett Bank subsequently sold what had formerly been FFB's bond administration division to the Bank of New York (BNY). The resulting entity, the Bank of New York Trust Company of Florida (BNYF), continued as trustee of the bond reserve account.
The resolution authorizing the new bonds mandated that the reserve account from the original bonds be transferred to the new bonds. After SG learned of the transfer, its counsel wrote to FHSC and BNYF and informed them that the refunding of the 1992 bonds had terminated the investment agreement. SG also stated that it would return the reserve account funds to the trustee and requested the return of its collateral. Counsel for FHSC responded that the agreement was still in effect and that FHSC would seek a judicial declaration unless SG withdrew its assertion, "on or before July 28, 2003," that the agreement had been terminated. On July 30, 2003, SG filed this action seeking a declaration of its rights and obligations under the investment agreement. One day later, and apparently without knowledge of this action, FHSC filed a complaint in the Middle District of Florida seeking the same relief. FHSC later added a claim of breach of contract when SG failed to make a scheduled interest payment. FHSC and BNYF then made this motion. Judge Lazzara of the Middle District of Florida has issued a stay in the Florida action pending resolution of this motion.
The trustee, BNYF, is not a party to the Florida action.
Discussion
I. Personal Jurisdiction
SG bears the burden of establishing the court's personal jurisdiction over defendants. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). When a 12(b)(2) motion is decided without an evidentiary hearing, a plaintiff need only make a prima facie showing of personal jurisdiction. See DiStefano v. Carozzi North America, Inc., 286 F.3d 81, 84 (2d Cir. 2001). All pleadings and affidavits are construed in the light most favorable to the plaintiff, and all doubts are resolved in its favor. See id.; see also CutCo, 806 F.2d at 365.
SG faces significant obstacles in making a prima facie case that this court has personal jurisdiction over defendants. SG is suing two entities that did not exist when SG and FFB executed the investment agreement in 1992. One is the successor to a signatory to the agreement. The other is characterized as a "beneficiary" of the agreement. In addition, the parties appear to have almost no information regarding the negotiation and execution of the investment agreement. SG seeks to overcome these difficulties with a number of arguments, each of which should be examined.
With respect to defendant BNYF, SG first argues that the trustee is a successor in interest of the original trustee, and as such has acquired the jurisdictional status of its predecessor. Apart from the question of the transferability of personal jurisdiction, SG's position depends on whether FFB, the predecessor, had contacts sufficient to subject it to personal jurisdiction in New York.
The law of the state in which a court sits governs personal jurisdiction in a diversity action. See Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir. 1984). SG argues that this court has personal jurisdiction over the original trustee under CPLR § 302(a)(1), which provides, as is pertinent here, that "a court may exercise personal jurisdiction over any non-domiciliary,. . . who in person or through an agent . . . transacts any business within the state. . . ." A non-domiciliary "transacts business" under this subsection when it "purposefully avails [itself] of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its laws." Cutco, 806 F.2d at 365 (quoting McKee Electric Co. v. Rauland-Borg Corp., 283 N.Y.S.2d 34, 38 (1967) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958))). This standard does not require a single act that would constitute a transaction of business in New York. Rather, a court must consider "the totality of the defendant's activities within the forum." Sterling Nat'l Bank Trust Co. v. Fidelity Mortgage Investors, 510 F.2d 870, 873 (2d Cir. 1975) (quoting Galaay v. Bulletin Co., 504 F.2d 1062, 1064 (2d Cir. 1974) (quotingLongines-Wittnauer Watch Co. v. Barnes Reinecke, Inc., 15 N.Y.2d 443, 457 n. 5 (1965))). But the transaction of business alone is not sufficient to fulfill the statutory requirement. A plaintiff's claim must be "sufficiently related to the business transacted that it would not be unfair to deem it to arise out of the transacted business, and to subject the defendants to suit in New York."Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 59 (2d Cir. 1985).
In support of § 302(a)(1) jurisdiction, SG proffers the following contacts as evidence that FFB purposefully availed itself of the benefits of New York law: (1) FFB solicited SG's services in New York; (2) FFB contracted with SG, an entity whose U.S. headquarters are in New York, for a long-term investment contract; (3) FFB transferred funds into New York; (4) FFB contracted for additional services to be performed in New York, such as the monitoring of the value of the collateral and the preparation of monthly statements; (5) FFB agreed that New York law would apply to disputes over the agreement; and (6) FFB contracted with a New York insurance company to insure the bonds, thus taking advantage of New York insurance law.
Three of these contacts are not relevant here. First, while the contract called for the performance of services in New York, those services were to be performed by SG, not defendants. SG's services are part and parcel of the original contract, not additional activities by which FFB can be said to have injected itself into the state. Second, contrary to SG's representations in its papers and at oral argument, the contract does not have an exclusively New York choice of law clause. Rather, the contract provides that disputes concerning the agreement are to be interpreted by reference to New York law, with the exception of the obligations of the trustee under the agreement, which are to be governed by Florida law. SG seeks a determination of the obligations of both sides. Thus, it cannot be said that the hybrid choice-of-law clause evinces an intention on the part of FFB to "purposefully invoke the benefits and protections of [New York's] laws." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 482 (1985) (internal quotation marks omitted); cf. Cutco, 806 F.2d at 366-67 (holding that while a choice of law provision is one factor in the determination of jurisdictional contacts, such a provision "does not constitute a voluntary submission to personal jurisdiction"). Third, the fact that FFB selected a New York entity as insurer for the bonds is not relevant to this dispute. The bond insurer was named a third-party beneficiary of the investment agreement, received monthly statements from plaintiff, and had various rights relating to contract termination and modification in the event of default. But FFB's choice of a New York insurer is not a transaction of business from which this dispute arises, a necessary component of personal jurisdiction under § 302(a)(1). See Bank Brussels Lambert v. Fiddler Gonzalez Rodricruez, 171 F.3d 779, 787 (2d Cir. 1999). This is a dispute over the application of the contract to the disposition of the reserve account, not over any of the contract provisions relating to the bond insurer.
That leaves plaintiff with the contentions that FFB sought out SG in New York, that it contracted for maintenance of a long-term investment account in New York, and that it sent money to New York to fund that account. While SG alleges that its U.S. headquarters are located in New York and that FFB solicited it there, the fact remains that plaintiff is a French corporation. It is not clear that by soliciting SG, FFB should be understood as having availed itself of New York law. The length of the proposed relationship is also not dispositive, given that FFB's obligations, after the initial execution of the contract and transfer of funds, were limited to passive acceptance of interest payments and monthly statements in Florida. While SG notes that it performed a number of tasks on behalf of the trustee in New York throughout this period, it is well-settled that "[t]he appropriate focus of an inquiry under CPLR § 302(a)(1) is on what the non-domiciliary defendant[s] did in New York and not on what the plaintiff did." Int'l Customs Assocs., Inc. v. Ford Motor Co., 893 F. Supp. 1251, 1262 (S.D.N.Y. 1995).
Indeed, the parties agreed that "the Trustee shall . . . be entitled to bring any proceedings against [SG] before any competent court within the territorial jurisdiction of the Cour d'Appel of Paris."
Finally, contrary to SG's contention, maintenance of a bank account in New York is usually insufficient to confer personal jurisdiction over a non-domiciliary defendant, even in suits arising from the account. The cases that plaintiff cites in support of personal jurisdiction over defendants all involve contacts more numerous and purposeful than those alleged here. See, e.g., ESI, Inc. v. Coastal Corp., 61 F. Supp.2d 35, 58-63 (S.D.N.Y. 1999) (defendants entered into several agreements containing forum selection and consent to jurisdiction clauses, contracted to send payments to New York, and negotiated agreements in New York by mail, fax, and telephone); Lewis Eugenia Van Wezel Found., Inc. v. Guerdon Indus., Inc., 450 F.2d 1264, 1267 (1971) (defendants borrowed money in New York); Lancaster v. Zufle, 165 F.R.D. 38, 40-41 (S.D.N.Y. 1996) (defendant signed promissory note that was payable in New York and contained a New York choice-of-law clause, engaged a New York agent to act on her behalf, and was the signatory of a corporate checking account at a New York bank). One of the few cases that has premised personal jurisdiction on the basis of a foreign defendant's New York bank account determined that the defendant transacted virtually all of its business through the account and thus satisfied the more rigorous "doing business" standard of CPLR § 301.See United Rope Distribs., Inc. v. Kimberly Line, 785 F. Supp. 446, 450 (S.D.N.Y. 1992). The situation here is readily distinguishable. As the Supreme Court has noted, the test for determining the existence of personal jurisdiction "is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite 'affiliating circumstances' are present." Kulko v. Superior Court, 436 U.S. 84, 92 (1978). Superficial resemblances between this case and others involving the disposition of money in New York are not determinative of the question of personal jurisdiction.
In short, serious questions remain regarding whether FFB purposefully availed itself of the benefits of New York law. Even if SG's prima facie case were more persuasive, it is not clear that personal jurisdiction over BNYF should be determined by reference to its predecessor's contacts with New York. Courts have held that a successor may inherit its predecessor's jurisdictional status in several situations: for example, if there was a de facto merger or consolidation of the two entities or if the successor is a "mere continuation" of the predecessor. Kidz Cloz, Inc. v. Officially for Kids, Inc., No. 00 Civ. 6270 (DC), 2002 WL 1586877, at *4 (S.D.N.Y. July 17, 2002). In Kidz Cloz, the court held that it could properly exercise personal jurisdiction over a defendant corporation that had entered into a series of letter agreements to purchase all of the assets of a New York company and assume control of its operations. Each agreement contained a clause selecting New York as the exclusive forum for the litigation of disputes. See id. The court in International Private Satellite Partners, L.P. v. Lucky Cat Ltd., 975 F. Supp. 483 (W.D.N.Y. 1997), determined that the exercise of personal jurisdiction was proper over a successor to a corporation that had entered into an agreement with the plaintiff containing a New York forum selection clause. See id. at 485. In each of these cases, personal jurisdiction over the original contracting party had been gained via a forum selection clause. The issue was not, as it is here, whether minimum contacts could be transferred, but whether the defendant's assumption of its predecessor's rights and obligations constituted a voluntary adoption of all of the terms of the contracts that the predecessor had executed. Plaintiff also cites Linzer v. EMI Blackwood Music, Inc., 904 F. Supp. 207 (S.D.N.Y. 1995), which held that "'[a] successor-in-interest may be subject to jurisdiction based on the activities of its predecessor'. . . . [if] the predecessor and successor be one and the same and . . . the predecessor continue to exist as part of the successor," id. at 213 (quoting Colson Servs. Corp. v. Bank of Baltimore, 712 F. Supp. 28, 30 (S.D.N.Y. 1989)). However, Linzer involved the successor to a defunct New York corporation, which would have been subject to personal jurisdiction under N.Y. Bus. Corp. Law § 304(a). The court did not consider how the successor-in-interest analysis applies to personal jurisdiction predicated upon CPLR § 302(a)(1).
SG's second argument is that BNYF has sufficient contacts with New York independent of its relationship to its predecessor, FFB, because it accepted the continuing benefits and obligations of the contract between SG and FFB. BNYF appears to have served as trustee for approximately eight years. However, its contacts with New York are weaker than those attributable to FFB. The solicitation of SG and negotiation of the contract are wholly attributable to FFB. BNYF simply continued to accept the interest payments and monthly statements sent by SG to Florida. The cases SG cites in support of independent § 302(a)(1) jurisdiction over BNYF involve parties who did more than simply ratify a contract executed by a predecessor that possessed jurisdictional ties to New York. They ratified or accepted assignment of contracts that required them to perform substantial activities in New York or for the benefit of a New York corporation. See, e.g., Fid. Cas. Co. of N.Y. v. Life Cos., Inc., 36 F.R.D. 267, 268 (S.D.N.Y. 1964); Applied Hydro-Pneumatics, Inc. v. Bauer Mfg., Inc., 416 N.Y.S.2d 817, 820 (2d Dep't 1979). Such situations are distinguishable in that those defendants can be said to have contemplated participating in a future course of activities in New York. See also J.L.B. Equities, Inc. v. Ocwen Financial Corp., 131 F. Supp.2d 544 (S.D.N.Y. 2001) (noting that Bauer involved corporations with shared directors and allegations of fraudulent activity intended to avoid payment obligations in New York). By contrast, SG does not offer evidence that BNYF's "voluntary election" of FFB's obligations under the investment contract contemplated any additional New York-directed activity.
SG's third argument with respect to BNYF is that the trustee should be held to share the jurisdictional status of its parent, BNY. See Volkswagenwerk, 751 F.2d at 120-21. Courts have deemed such a transfer of status to be appropriate where the affiliated non-domiciliary is an alter ego of the resident entity. An essential factor in this determination is common ownership. Courts also examine the financial dependency of the subsidiary on the parent, the degree to which the parent controls the selection of the subsidiary's management and fails to observe corporate formalities, and the degree of control the parent exercises over the policies of the subsidiary. See id. at 120-22; see also Palmieri v. Estefan, 793 F. Supp. 1182, 1187-90 (S.D.N.Y. 1992). This analysis requires more than an identity of ownership. It suggests that a subsidiary should not assume the jurisdictional status of its parent unless their separate corporate identities are a mere facade. See, e.g.,id. at 1188-89 (citing cases applying the four factors). While the relationship between BNYF and BNY appears to satisfy the common ownership prong, SG has offered no other evidence to justify what is, in effect, a piercing of the corporate veil for jurisdictional purposes.
SG requests discovery to cure this deficiency. Given the fact that an alternate forum is available for this dispute, see infra, discovery is unnecessary.
SG makes two jurisdictional arguments with respect to FHSC. Both rely on the existence of an agency relationship between each trustee and beneficiary. First, SG argues that FHSC is subject to personal jurisdiction based on the acts of its predecessor, HCHA, which, in turn, is subject to jurisdiction based on the acts of its agent, FFB. Second, SG argues that FHSC is subject to jurisdiction in New York because of the acts of its agent, BNYF, in voluntarily assuming the benefits and obligations of the contract. To be considered an agent for purposes of conveying personal jurisdiction, an individual or entity must have acted "for the benefit of and with the knowledge and consent of" the foreign principal, and the principal must have "exercised some control" over the agent. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988); see also Cutco, 806 F.2d 361, 366-67. Both benefit and consent are present here. Whether HCHA or FHSC exerted the requisite control is a more difficult question. SG points to provisions in the 1992 resolution that set out detailed requirements for agreements governing the reserve account. While HCHA may have been responsible for creating guidelines for the investment and management of the account, it did not direct FFB to turn to a New York-based institution to invest the account. Neither has SG shown that HCHA exerted any control over the actions of the trustee in its subsequent maintenance and supervision of the account or in its relationship with SG. Plaintiff can show even less control and supervision in the relationship between FHSC and BNYF. SG offers no evidence of FHSC's control over the actions of its purported agent. The cases SG cites involve more active agent-principal relationships as well as more obvious contacts between the agent and New York. See, e.g.,Kreutter, 527 N.Y.S.2d at 195 (agent was a corporation licensed to do business in New York); Lancaster, 165 F.R.D. at 41 (agent was a New York attorney). In sum, SG has not offered sufficient evidence of a principal-agent relationship between any of these parties. And even if the trustees were acting as agents for HCHA and FHSC, plaintiff must still deal with each trustee's weak contacts with New York.
In its supplemental papers, SG appears to recognize that personal jurisdiction with respect to FHSC presents a much closer question, and indicates its willingness to drop FHSC as a defendant. Because SG continues to argue that this court may exercise personal jurisdiction over FHSC, however, an analysis of this issue is necessary.
The nature of this action presents another problem with respect to personal jurisdiction over defendants. Courts in this district have held that "the transaction of business by a defendant in New York does not give rise to a declaratory judgment cause of action." Viacom Int'l, Inc. v. Melvin Simon Prods., Inc., 774 F. Supp. 858, 863 (S.D.N.Y. 1991). That is, where the plaintiff merely seeks a declaration of its rights, and does not seek relief for some injury, it cannot be said that the cause of action is predicated upon the defendant's in-state business activities. See id. (citing Columbia Pictures Indus., Inc. v. Schneider, 435 F. Supp. 742, 749-50 (S.D.N.Y. 1977)). The Second Circuit has approved of this reasoning. See Beacon Enters., Inc. v. Menzies, 715 F.2d 757, 765 (2d Cir. 1983). SG has indicated that it intends to amend its complaint to add a breach of contract claim. However, it has not yet done so.
II. Venue
"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). The determination of whether to grant a motion to transfer venue "requires a balancing of conveniences, which is left to the sound discretion of the district court." Filmline (Cross-Country) Prods., Inc. v. United Artists Corp., 865 F.2d 513, 520 (2d Cir. 1989). It is well settled that under § 1404(a), a district court has the power to transfer a case to another judicial district in the interest of justice, whether or not venue is proper in the transferor district.Alexander Alexander, Inc. v. Donald F. Muldoon Co., 685 F. Supp. 346, 348 (S.D.N.Y. 1988) (citing Goldlawr, Inc. v. Heiman, 369 U.S. 463 (1962)). However, the court may transfer pursuant to § 1404(a) only if the transferee forum is one where, at the time the suit was brought, the defendants were subject to personal jurisdiction and venue would have been proper. See Volkswagen De Mexico, S.A. v. Germanischer Lloyd, 768 F. Supp. 1023, 1028-29 (S.D.N.Y. 1991).
Among the factors a court should consider in exercising its discretion to transfer venue in the interest of justice pursuant to § 1404(a) are plaintiff's choice of forum, the convenience of the witnesses and parties, the location of events giving rise to the suit, the relative ease of access to sources of proof, each forum's familiarity with governing law, and trial efficiency. See Giuliani, S.p.A. v. Vickers, Inc., 997 F. Supp. 501, 503 (S.D.N.Y. 1998). Defendants bear the burden of showing that the relevant factors weigh strongly in favor of transfer.See Ramada Franchise Sys., Inc. v. Cusack Dev. Inc., 96 Civ. 8085 (MGC), 1997 WL 304885, at *2 (S.D.N.Y. June 6, 1997).
In this case, both defendants are subject to personal jurisdiction in Florida: defendants note in their motion that FHSC is a Florida corporation and that BNYF has its principal place of business in Florida. Venue is proper in the Middle District of Florida under 28 U.S.C. § 1391(a)(2). The events giving rise to the suit are the recall of the original bonds and the subsequent transfer of the reserve account to the new bonds. These events occurred entirely in Florida. Witnesses and documents relating to these events are located in Florida. Although SG argues that only the New York choice of law provision will be relevant to this dispute, it is apparent that the bond refunding, reserve account transfer and retention of collateral implicate the obligations of the trustee as well as SG. The court that adjudicates this matter will, therefore, be required to apply both New York and Florida law.
The only factor that may counsel against transfer is plaintiff's choice of forum. While this is an important consideration, it is outweighed, in this case, by the serious questions that remain concerning whether there is personal jurisdiction in this district over either of these defendants. Cf. Longwood Res. Corp. v. C.M. Exploration Co., 988 F. Supp. 750, 751 (S.D.N.Y. 1997). Moreover, plaintiff's choice of forum should carry less weight in a declaratory judgment action. A plaintiff brings such an action because it has perceived a threat of suit. Therefore, its posture before the court is more akin to a defendant than an ordinary plaintiff seeking relief.
Finally, SG argues that it is entitled to the benefit of the "first-filed" rule, which mandates that "[w]here there are two competing lawsuits, the first suit should have priority, absent the showing of balance of convenience . . . or . . . special circumstances . . . giving priority to the second." First City Nat'l Bank Tr. Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989) (alterations in the original) (citations omitted). This contention is not persuasive. The first-filed rule does not supersede the inquiry into the balance of convenience under § 1404(a), and a transfer justified under § 1404(a) is proper even if the action to be transferred was filed before a related action was filed in the transferee district. See River Road Int'l, L.P. v. Josephthal Lyon Ross Inc., 871 F. Supp. 210, 214-15 (S.D.N.Y. 1995); Giuliani, 997 F. Supp. at 504. When two actions are filed one day apart, and the plaintiff in the second action is unaware of the filing of the first, the first-filed rule has limited force.
Conclusion
For the foregoing reasons, defendants' motion to dismiss is denied, and their motion to transfer this action to the United States District Court for the Middle District of Florida is granted.
SO ORDERED.