Opinion
Civ. No. 99-3129, SECTION: E/3.
March 9, 2000.
ORDER AND REASONS
Defendants Natural Energy Corporation ("NEC"), United States Produce Company ("USPC"), and Stanley Z. Siegel ("Siegel") have filed Motions to Dismiss for Lack of Jurisdiction, for Failure to Serve and for Defective Service and Process. They move pursuant to Federal Rule of Civil Procedure 12(b)(2) for an order dismissing all claims against them on the grounds that this Court lacks personal jurisdiction over the defendants. Plaintiff opposes this motion on the grounds that defendants do indeed possess the minimum contacts required for this Court to exercise jurisdiction over them.
There is an affidavit attached to the opposition memorandum signed by Rodney R. Shoemann, Sr., but the heading on the affidavit states that it is the affidavit of Rodney R. Shoemann, Jr. Counsel for Rodney R. Shoemann, Sr., has advised the Court that the plaintiff and the affidavit are those of Rodney R. Shoemann, Sr., and a corrected affidavit will be filed.
The underlying action in this matter is one seeking enforcement of a loan and stock purchases agreement as well as damages from misrepresentations and/or material omissions made in connection with the defendants' offer to sell securities. Defendant, Natural Energy Corporation, is a Delaware corporation with its principal business establishment in the District of Columbia. Defendant, United States Produce Company, is a Delaware corporation with its principal business establishment in the District of Columbia. Defendant, Stanley Z. Siegel, is an individual person of the full age of majority, and a citizen of the State of New York. Aside from being a licensed attorney, Mr. Siegel is also the Managing Director of both NEC and USPC.
The Court notes that defendants NEC and USPC, both corporations, cannot be represented by Mr. Siegel unless he so moves in accord with the Local Rules of this district.
Plaintiff alleges that during the summer of 1998 he was contacted by Siegel by telephone at his office in Metairie, Louisiana and was presented with the defendants' purported plan for developing certain agricultural facilities in the United States. The Defendants represented that USPC was in the business of constructing, owning, and operating thermophilic anaerobic digestion of manure raw material production facilities that were integrated with intensive greenhouse facilities (otherwise known as "TAD-IGH Facilities").
NEC was represented to be the parent corporation of and majority owner of the outstanding shares of common stock of USPC. It was further represented that USPC had received from NEC all technology, know-how and other intellectual property rights to exclusively build, own and operate TAD-IGH Facilities in the United States, as assigned to NEC by Environmental Systems Ltd. of Haifa, Israel.
In connection with the foregoing representations, Schoemann requested and was provided with various documents regarding possible investment opportunities involving NEC and USPC. Additionally, Siegel reviewed with Schoemann the 5-1 for Colorado Greenhouse Holdings, Inc. and explained that the proposed venture of the defendants was superior to that of Colorado Greenhouse Holdings, Inc. in numerous particulars, including the system for watering to be employed by the defendants, air conditioning systems, glass, growing processes and other technical and operational aspects.
Ultimately in reliance on all of the above-described information, and based upon lengthy and frequent telephone conversations with Siegel conducted with the plaintiff throughout July, August and September 1998 in Louisiana, Schoemann agreed to a stock purchase and short term bridge loan of capital for pre-construction financing to the defendants. The principal amount of the loan, $250,000.00, was due and payable on November 9, 1998 (the "Maturity Date"), which date was extended at defendants' request by letter dated November 9, 1998, extending the Maturity Date through November 13, 1998. No other extensions of the Maturity Date were ever granted.
In addition to the interest charged, as additional compensation to induce Schoemann to make the loan, the parties agreed that Schoemann would receive 6% of the outstanding common stock of USPC and NEC with appropriate anti-dilution provisions to insure that after any IPO, stock split, or other transaction, Schoemann would retain a 6% overall interest in USPC and NEC. The loan and stock purchase agreement further provided that in the event that the principal and interest were not paid fully by the Maturity Date, the defendants would convey to Schoemann certificates of common stock, validly issued, fully paid and non-assessable, equal to 20% of the then outstanding common stock of each USPC and NEC. Both percentage interests so conveyed were promised to contain the same anti-dilution provisions that were applicable to the original 6% stock transfer.
As a result of these dealings, Plaintiff has brought an action in this Court alleging, among other things; breach of promise to pay, breach of promise to transfer stock and violation of Louisiana blue sky laws. As noted above, defendants argue that they were not served or they were served improperly, and they did not maintain minimum contacts with Louisiana required to provide this Court with jurisdiction over them. The Court will address these issues in turn.
A. Failure to Serve Notice
Defendants' first argument is that neither NEC or USPC were properly served. However, the record clearly indicates that service upon NEC and USPC was effectuated by personally serving Stacey Crum, as Managing Agent for the Delaware Secretary of State. Service was made at Townsend Building, Federal Duke of York Street, Dover, DE 19901. Under the applicable section of the Delaware Code,
(b) In case the officer whose duty it is to serve legal process cannot by due diligence serve the process in any manner provided for by subsection (a) of this section, it shall be lawful to serve the process against the corporation upon the Secretary of State, and such service shall be as effectual for all intents and purposes as if made in any of the ways provided for in subsection (a) hereof.8 Del. C. § 321 (1999).
Plaintiff has filed for the record a certificate from the Office of the Secretary of State for the State of Delaware showing that neither NEC nor USPC are any longer in existence or good standing under the laws of the State of Delaware having become inoperative and void the first day of March, 1998 for non-payment of taxes. Therefore, Plaintiffs service upon the Secretary of State's Office in the State of Delaware was proper under Delaware law.
B. Insufficiency of Process
Next, defendant argues that service in New York was insufficient because the named defendant in the complaint was "Stanley P. Siegel," rather than Stanley Z. Siegel. Further, Petitioner argues that he was not properly served with process, as a copy was not served on him personally.
Defendant correctly notes that the original caption of the complaint made reference to "Stanley P. Siegel" rather than to "Stanley Z. Siegel." However, the body of the complaint itself refers to "Stanley Z. Siegel." Also, the initial summonses were corrected by hand to change the "P" to "Z," and the second summons was typed "Stanley Z. Siegel."
When an alleged defect in service is due to a minor, technical error, only actual prejudice to the defendant or evidence of a flagrant disregard of the requirements of the rules justifies dismissal. Libertad v. Welch, 53 F.3d 428, 440 (1st Cir. 1990);see also 4A C. Wright and A. Miller, Federal Practice Procedure, Civ.2d § 1088; Sanderford v. Prudential Ins. Co. of America, 902 F.2d 897, 900 (11th Cir. 1990); Crane v. Battell, 127 F.R.D. 174, 177 (S.D.Cal. 1989) (erroneously naming defendant "Leonard Colin" rather than "Colin Lennard" in the summons and complaint is a mere technical error that does not prejudice defendant's rights when there is actual notice). Therefore, there would be no prejudice to Defendant's rights if he had actual notice.
Defendant argues that he had no actual notice because he was not served personally. However, the record clearly indicates that service was made upon the Defendant at 220 East 65th Street, Apt. 5-K, New York, New York by a Mr. Randy Barona on October 25th, 1999. In an affidavit Mr. Barona testifies that he made service by leaving a copy of the Summons with the doorman at Mr. Siegel's apartment building, Mr. Rousey. Mr. Barona testifies that Mr. Rousey called the Siegel apartment and informed Defendant that Mr. Barona had legal documents for him and Mr. Siegel informed the doorman to have Mr. Barona leave the documents with him.
In addition, on October 29th, 1999, Mr. Barona served another copy of the complaint upon Stanley Z. Siegel by enclosing a true copy thereof in a securely sealed and postpaid wrapper with the words "PERSONAL and CONFIDENTIAL" written on the same, and not indicating on the outside that it was from an attorney, and depositing it into an official depository maintained by the Government of the United States addressed to the Defendant Seigel.
Rule 4(e) of the Federal Rules of Civil Procedure provides, in pertinent part, that:
Unless otherwise provided by federal law, service upon an individual from whom a waiver has not been obtained and filed, other than an infant or incompetent person, may be effected in any judicial district of the United States:
(1) pursuant to the law of the state in which the district court is located, or in which service is effected, for the service of a summons upon the defendant in an action brought in the courts of general jurisdiction of the State;
(2) by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.
Under New York law, service may be made by delivery to a person of suitable age and discretion at the actual place of business, dwelling place or usual place of abode, and by mailing an additional copy. N.Y. Civ. Prac. L. R. § 308(2) (1999). Service was proper under New York law in that it was accomplished by an authorized person under the law of that State, who (1) was not permitted to gain access to the Siegel apartment, and thus (2) at the instruction of Siegel and the doorman, left the process with the doorman.
Given the restriction on access inherent in such a situation, the legislature and courts in New York routinely recognize the propriety of such service, holding that a doorman who communicates in a normal fashion with the tenants is "a person of suitable age and discretion," and further holding that the tenants' dwelling extends to the lobby, if the process server is directed not to pass beyond there. See, e.g., F.I. duPont, Glore Forgan Co. v. Chen, 41 N.Y.2d 794, 798, 364 N.E.2d 1115, 1117, 396 N.Y.S.2d 343 (N.Y. 1977) ("it cannot be said that the doorman was not `a person of suitable age and discretion' . . . and . . . if a process server is not permitted to proceed to the actual apartment by the doorman or some other employee, the outer bounds of the actual dwelling place must be deemed to extend to the location at which the process server's progress is arrested"); accord Cohen v. Shure, 153 A.D.2d 35, 548 N.Y.S.2d 696 (N.Y.App.Div. 1989) (applying provision of CPLR 308(2) to uphold service by delivery of process to the doorman and by mailing a copy of pleading to defendant's last known address).
Therefore, the Defendant Siegel was properly served according to New York State law. Under Rule 4(e)(1) of the Federal Rules of Civil Procedure, because service was in accordance with the law of the state in which service was effected, service was valid under the Federal Rules. Also, since the service was proper under New York law, Mr. Siegel had notice of the complaint filed against him regardless of the minor spelling error in the caption, and therefore suffered no actual prejudice. Therefore, Petitioner's second argument must fail.
C. Minimum Contacts
Finally, Petitioner argues that he did not maintain the minimum contacts necessary to maintain jurisdiction under the Louisiana State Long-Arm statute. A court can exercise personal jurisdiction over a defendant if the defendant has had minimum contacts with the forum and the maintenance of the suit in the forum will not offend traditional notions of fair play and substantial justice. Busch v. Buchman, Buchman O'Brien, Law Firm, 11 F.3d 1255, 1257 (5th Cir. 1994); see also, Asahi Metal Indus. v. Superior Court of Calif., 480 U.S. 102, 113, 107 S.Ct. 1026, 1033, 94 L.Ed.2d 92 (1987) This jurisdictional limitation flows not from notions of sovereignty, but from the Due Process Clause. Busch, 11 F.3d at 1257-58; see also, Insurance Corp. of Ireland, Ltd. v. Campagnie des Bauxites, 456 U.S. 694, 701, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982).
In cases where a state is attempting to get extraterritorial jurisdiction over a defendant, the inquiry is whether the defendant has had minimum contacts with the state. Busch, 11 F.3d at 1258; see also, International Shoe Co. v. Washington, 326 U.S. 310, 315, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). And, when a federal court is attempting to exercise personal jurisdiction over a defendant in a suit based upon a federal statute providing for nationwide service of process, the relevant inquiry is whether the defendant has had minimum contacts with the United States. Busch, 11 F.3d at 1258; see also, United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993).
In this particular case, the Plaintiff is bringing an action under the Securities Act which provides for nationwide service of process. 15 U.S.C. § 77v(a). Therefore, as long as Mr. Siegel maintains minimum contacts with the United States, forum is proper in any United States District Court. A defendant has sufficient minimum contacts with the United States to support the fairness of the exercise of jurisdiction by a United States Court if he resides or conducts business on American soil. Vlasak v. Rapid Collection Systems, Inc., 962 F. Supp. 1096, 1099 (N.D. Ill. 1997) (citing Fitzsimmons v. Barton, 589 F.2d 330, 333 (7th Cir. 1979). Mr. Siegel is clearly a resident of the United States as he maintains an address at 220 East 65th Street, Apt. 5-K, New York, New York. Therefore, jurisdiction is proper under the Securities Act. 15 U.S.C. § 77v(a).
In the alternative, Mr. Siegel could be haled into court in Louisiana provided that he has the requisite minimum contacts necessary so that the exercise of jurisdiction over him comports with traditional notions of fair play and substantial justice.International Shoe v. Washington, 326 U.S. 310, 316, 90 L.Ed. 95, 66 S.Ct. 154 (1945). When jurisdiction is based on the defendant's presence or accumulated contacts with the forum, the court exercises general jurisdiction. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n. 15, 85 L.Ed.2d 528, 105 S.Ct. 2174 (1985); Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 nn. 8 9, 80 L.Ed.2d 404, 104 S.Ct. 1868 (1984). General jurisdiction is invoked when the cause of action arises from the defendant's non-forum related activities. To exercise general jurisdiction, the defendant's contact with the forum must be systematic and continuous. Dalton v. RW Marine, Inc., 897 F.2d 1359, 1362 (5th Cir. 1990). The proper focus for analyzing these contacts is whether they represent an effort by the defendant to "purposefully avail itself of the privilege of conducting activities within the forum State." Hanson v. Denckla, 357 U.S. 235, 253, 2 L.Ed.2d 1283, 78 S.Ct. 1228 (1958).
Specific jurisdiction is when the cause of action arises from the defendant's forum activities such that the defendant "should reasonably anticipate being haled into court in the forum state."Clark v. America's Favorite Chicken Co., 908 F. Supp. 390, 393 (E.D. La. 1995), citing Holt Oil Gas v. Harvey, 801 F.2d 773, 777 (5th Cir. 1986). In other words, `defendants' contacts with the forum which are asserted as the basis for jurisdiction must be related to the subject matter of the controversy . . ., or must be the result of "affirmative acts performed in connection with the subject matter of this litigation" Id; Patterson v. Dietze, Inc., 764 F.2d 1145, 1146 (5th Cir. 1985). Accord,World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559 (1980). Under the doctrine of specific jurisdiction, a single substantial contact may satisfy due process requirements. Dalton v. R W Marine. Inc., 897 F.2d 1359, 1361 (5th Cir. 1990). McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199 (1957).
Accepting the facts in the light most favorable to the non-movant, as required in deciding this motion, defendant Mr. Siegel initiated and made several phone calls to the plaintiff in Louisiana. The purpose of these phone calls was to induce plaintiff into making loans and investing in the companies of which Mr. Siegel was Managing Director. In reliance on the information provided to him by Mr. Siegel, and based upon these phone calls, plaintiff agreed to a stock purchase and short term bridge loan of capital for pre-construction financing to the defendants. In effect, Mr. Siegel was conducting business on behalf of himself as well as NEC and USPC in the State of Louisiana. At the very least, this Court finds the defendants' actions in contacting the plaintiff in Louisiana, directing marketing efforts at him here, and soliciting his investment in and inducing him into entering a business relationship with the defendants establishes specific jurisdiction over the causes of action arising out of their activities in the state of Louisiana and are sufficient to defeat the defendants' motion to dismiss.
Accordingly, for the above and foregoing reasons,
IT IS ORDERED that the Motion of defendants Natural Energy Corporation, United States Produce Company, and Stanley Z. Siegel to Dismiss Complaint for Lack of Jurisdiction, for Failure to Serve and for Insufficiency of Service and Defective Service and Process be and is hereby DENIED;
New Orleans, Louisiana, this 9th day of March, 2000.