Summary
In On Line Marketing Inc., the District Court acknowledged that "[t]elephone calls or mailings,... can confer personal jurisdiction only if the defendant conducted these activities to actively participate in business dealings in New York,... and in order to purposely avail' themselves of the benefits of doing business in New York."
Summary of this case from Cerberus Capital v. Snelling Snelling, Inc.Opinion
99 Civ. 10411 (HB).
April 20, 2000.
OPINION AND ORDER
Defendant moves to dismiss plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. Alternatively, defendant moves to transfer venue pursuant to 28 U.S.C. § 1404(a), or to dismiss plaintiffs' fraud and punitive damages claims pursuant to Rule 12(b)(6) and Rule 9(b) for failure to plead fraud with particularity. For the reasons discussed herein, defendant's motion to dismiss for lack of personal jurisdiction is GRANTED.
BACKGROUND
The following facts are drawn from the complaint, and the parties' briefs and affidavits. For purposes of this motion, the facts are construed in the light most favorable to plaintiffs. Plaintiffs, On Line Marketing Inc. ("On Line") and Econobill Corp. ("Econobill"), are both New York corporations. Plaintiffs provide consulting services to businesses across the country with respect to telephone service contracts and tariffs, which includes providing proposals on how to obtain reduced telephone service rates. Defendant, Norm Thompson Outfitters Inc. ("Thompson"), is an Oregon corporation, with its principal place of business in Hillsboro, Oregon. Defendant operates retail stores in Oregon and a mail order catalog business, and it has a warehouse and shipping center located in West Virginia. All of its remaining facilities and employees are located in Oregon. Defendant has no stores, facilities, offices, employees or agent in New York.
All communications between the parties were conducted by telephone or facsimile. Plaintiffs first communicated with defendant in November of 1998 by telephone, and offered their services to defendant. The only other communications identified in the papers are: (1) that on or about November 17, 1998, defendant agreed in writing to retain plaintiffs to analyze ATT phone tariffs and prepare a proposal on how to reduce defendant's costs for its telephone services; (2) plaintiffs forwarded by facsimile a one-page form to defendant, the "ATT Tariff Reduction Agreement" ("Agreement"), which was signed by one of defendant's officers, Mr. Simon Goldstein ("Goldstein"), on November 17, 1998; (3) Goldstein signed and faxed an authorization form on December 20, 1998, which allowed plaintiffs to access defendant's ATT account information; and (4) on January 4, 1999, plaintiffs submitted the tariff analysis proposal to defendant by facsimile, which provided for projected cost savings in defendant's telephone rates of over $9,000 per month, plus related taxes and surcharges. There are no references to further discussions or writings between the parties, although plaintiffs claim they provided "ongoing communications to educate" defendant in tariff reduction issues, but no such communications are spelled out.
The parties disagree as to whether Goldstein was authorized to contract on behalf, yet that question is irrelevant for purposes of deciding this jurisdictional motion. Thus, in construing the facts in the light most favorable to plaintiffs, it is assumed for purposes of this motion only that Goldstein was authorized to sign the Agreement on behalf of defendant.
The Agreement between the parties provides in pertinent part:
The consultants [Plaintiffs] will conduct a data base search to identify and analyze other appropriate ATT Tariff offerings in order to qualify the client for better pricing. We will present any proposed ATT pricing for your approval without obligation.
The implementation of our recommendation is at the discretion of the client. However, if within 180 days, the client implements any new ATT Tariff initiated by us, or presented directly to the client by ATT in response to our research, the Client agrees to pay a fee to On Line Marketing/Econobill. This fee is 50% of the total agreed upon savings (including taxes, surcharges and regulatory fees) for the next fifteen months. . . . We will monitor the implementation of any agreed upon pricing changes to ensure carrier compliance. . . .
The client has no obligation to accept any new Tariff offered by ATT as a result of our work. . . .
Plaintiffs allege, upon information and belief, that defendant used the information contained in the proposal to negotiate a reduction in its costs with ATT, and failed to pay the agreed fee to plaintiffs. Plaintiffs assert claims for breach of contract and fraud, seeking compensatory damages of $81,775.00 and punitive damages of $2 million or greater.
DISCUSSION
Plaintiffs bear the burden for making a prima facie showing of personal jurisdiction here, pursuant to New York Civil Practice Law and Rule ("CPLR") 302(a)(1). That section in pertinent part provides jurisdiction where
any domiciliary, or his executor or administrator who in person or through his agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state. . . .
CPLR § 302(a)(1). To establish jurisdiction under this section, two conditions must be met: (1) the defendant must transact business in New York; and (2) the claim against the defendant must arise from that business activity. Cutco Industries v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986) (citing McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 642 (1981)).
Courts look to the "totality of circumstances" to determine whether a party has "transacted business" within the meaning of § 302(a)(1). National Tel. Directory Consultants, Inc. v. BellSouth Adver. Publ'g Corp., 25 F. Supp.2d 192, 195 (S.D.N.Y. 1998). The relevant factors include, but are not limited to: (1) whether the defendant has an ongoing contractual relationship with a New York corporation; (2) whether the contract was negotiated or executed in New York and whether, after executing a contract with a New York entity, the defendant visited New York for meetings devoted to the contractual relationship; (3) what the choice of law clause is in the contract; and (4) whether the contract requires defendant to send notices and payments into New York, or subjects defendant to supervision by the plaintiff corporation in New York. Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996). No one factor is dispositive, and all are relevant. Id. In addition, federal due process concerns are satisfied where the defendant's activities "constitute purposeful efforts to invoke the benefits and protection of New York law." First City Federal Sav. Bank v. Dennis, 680 F. Supp. 579, 584 (S.D.N.Y. 1988) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
Here, after applying these factors to our case, there is no basis to conclude that defendant "transacts business" in this state as required by § 302(a)(1). The Agreement is plaintiffs' standard one-page form agreement and involved no personal negotiations in New York. The Agreement was executed by defendant in Oregon, and by plaintiffs in New York. The Agreement contains no choice-of-law provision. Defendant maintains no offices, employees, stores or agents in New York. In addition, all of the communications between the parties occurred by telephone or by facsimile. No representative or officer of defendant has ever met with plaintiffs or visited plaintiffs' offices in New York regarding the contract. Although defendant was to send payment to plaintiffs in New York if it accepted plaintiffs' proposal, the Agreement did not require defendant to provide any notices or reports to plaintiffs here in New York. Further, even assuming plaintiffs' proposal had been accepted by defendant, there would be no need for the supervision of defendant by plaintiffs. Rather, the Agreement provided that plaintiffs would submit the proposal to defendant, which defendant could either accept or reject without obligation and at its discretion.
Finally, while it is true that plaintiffs performed their services in New York, the relevant focus under CPLR § 302 is on what the defendant did in New York in connection with the cause of action, not on plaintiffs' actions. See International Customs Assocs., Inc. v. Ford Motor Co., 893 F. Supp. 1251, 1262 (S.D.N.Y. 1995) ("focus of inquiry under 302(a)(1) is on what the non-domiciliary defendant did in New York and not what the plaintiffs did"); Paine Webber Inc. v. Westgate Group, Inc., 748 F. Supp. 115, 119 (S.D.N.Y. 1990) (same). Here, defendant's activities with respect to New York were limited to a handful of telephone calls and facsimiles sent to plaintiffs. First, defendant spoke to plaintiffs by telephone in early November 1998, to discuss the services offered by plaintiffs. Additional phone conversations were allegedly held thereafter. On November 17, 1998, defendant sent a facsimile to plaintiffs in New York, which was the signed, one-page agreement. On December 20, 1998, defendant sent another facsimile, the signed authorization form. These activities are insufficient to constitute "transacting business" in New York for purposes of CPLR § 302. See PaineWebber, 748 F. Supp. at 119 (a "series of frequent telephone calls and telecopies and the one meeting" in New York were insufficient to meet the "transacting business" standard).
Plaintiffs contends that the "repeated telephone calls, letters and faxes between the parties" establishes the business relationship between the parties in New York. Telephone calls or mailings, however, can confer personal jurisdiction only if the defendant conducted these activities to actively participate in business dealings in New York, Carlson v. Cuevas, 932 F. Supp. 76, 78 (S.D.N.Y. 1996), and in order to "purposely avail" themselves of the benefits of doing business in New York. National Tel. Directory Consultants, 25 F. Supp. 2d at 196. A finding that defendant "purposely availed" itself of the benefits of New York may not be inferred from mere acts of telephoning and mailing plaintiffs. Id. Moreover, telephone calls and faxes will not confer jurisdiction unless defendant used those communications as a means to participate in the local commerce. Id. at 197; see Premier Lending Servs., Inc. v. J.L.J. Assocs., 924 F. Supp. 13, 16 (S.D.N.Y. 1996). Here, defendant's telephone calls and faxes were not made to purposely avail defendant of New York law, nor were defendant's actions in any manner designed to market or sell its products here or to otherwise benefit from the local economy. Rather, defendant's contacts with plaintiffs were merely to engage plaintiffs' services, to determine whether defendant could obtain reduced telephone rates in Oregon. Defendant's communications with plaintiffs do not establish jurisdiction because they were not an attempt by defendant to purposely avail itself of New York as a forum in which to conduct business, and defendant did not retain plaintiffs because it sought to do business in New York.
As the court in PaineWebber aptly noted, the "current test for personal jurisdiction . . . focuses on the fairness and the nature of a defendant's contacts with the forum state, not the defendant's contact with the plaintiff." See PaineWebber, 748 F. Supp. at 121 n. 4 (citing International Shoe v. Washington, 326 U.S. 310, 317 (1945).
Plaintiffs further argue that because the Agreement calls for payment to be made to plaintiffs located in New York, defendant intended to avail itself of jurisdiction and reasonably anticipated being haled into court here. However, the mere fact that defendant was to send payments to plaintiffs in New York, without more, is insufficient to confer jurisdiction under § 302(a)(1), especially where the totality of all other factors establishes that jurisdiction does not exist. See, e.g., ESI, Inc. v. Coastal Corp., 61 F. Supp.2d 35, 60 (S.D.N.Y. 1999) (contractual requirement to send payments to New York is insufficient on its own to establish jurisdiction); Roper Starch Worldwide, Inc. v. Reymer Assocs., Inc., 2 F. Supp.2d 470 (S.D.N.Y. 1998) ("merely sending payment to New York is not sufficient to establish personal jurisdiction" under § 302(a)(1)).
Finally, jurisdiction under § 302(a)(1) requires a substantial relationship between the cause of action and the defendant's in-state activities. See Beacon Enter. Inc. v. Menzies, 715 F.2d 757, 764 (2d Cir. 1983) (citing McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 419 N.E.2d 321 (1981)). Plaintiffs contend that the fact that defendant allegedly solicits business and sends New York customers its mail order catalog is "of major significance." Yet, the dispute in this case concerns the alleged breach of the Agreement with regard to telephone service rates. Defendant's alleged in-state activities bear no relation to plaintiffs' claim, as the catalogs distributed by defendant have nothing to do with the Agreement or with the tariff proposal. Accordingly, there is no jurisdiction over the defendant pursuant to § 302(a)(1).
CONCLUSION
For the foregoing reasons, defendant's motion to dismiss for lack of personal jurisdiction is GRANTED. The Clerk of the Court is instructed to close this case.
SO ORDERED.
New York, New York April 2000