Opinion
02 CIV. 4633 (DLC)
February 27, 2003
Paul R. Verkuil, Nicholas A. Gravante, Jr., Harlan A. Levy, Ann M. Galvani, Andrew W. Hayes and Marilyn Kunstler, BOIES, SCHILLER FLEXNER, LLP, Attorneys for Plaintiff.
Laurence Greenwald and Michele Pahmer, STROOCK STROOCK LAVAN LLP, Attorneys for Defendant.
OPINION AND ORDER
Defendant Frank E. Walsh, Jr. ("Walsh") has moved to dismiss this action on the grounds of a lack of personal jurisdiction and improper venue, or, in the alternative, for a transfer of this case to the District of New Jersey. The plaintiff Tyco International Limited ("Tyco") asserts personal jurisdiction in this diversity action pursuant to New York's long arm statute. The plaintiff, in the alternative, has requested leave to take jurisdictional discovery and has filed a cross-motion for leave to amend its complaint to establish jurisdiction. For the following reasons, the defendant's motions are denied.
Background
The complaint arises out of Tyco's payment of $20 million to Walsh on or about July 31, 2001, in connection with Tyco's acquisition of CIT Group, Inc. ("CIT") on or about June 1, 2001. Walsh was allegedly paid this amount for introducing Tyco's Chairman and CEO, L. Dennis Kozlowski, to CIT's Chairman and CEO and otherwise promoting the acquisition. Walsh was a member of the Board of Directors of Tyco at the time, having been a board member since 1997, and having been a board member of its predecessor since 1992. The complaint alleges that Walsh knew that the payment of the $20 million, half of which went to a New Jersey charity designated by Walsh, had to be disclosed to and approved by the Board, but that he and Kozlowski agreed that the Board would not be informed. Outside directors learned of the payment in January 2002. At the Board meeting on January 16, 2002, in Florida, the Board asked Walsh to return $10 million and he refused. The complaint contains causes of action for restitution, breach of fiduciary duty, conversion, unjust enrichment, constructive trust, and inducing breach of fiduciary duty.
The answer was filed on August 16, 2002, and plead as affirmative defenses a lack of personal jurisdiction and improper venue. On August 27, Walsh filed the instant motion to dismiss.
In support of his motion to dismiss Walsh asserts that he is a resident of New Jersey and has no residence in New York. His business office is in New Jersey and his involvement with the CIT acquisition took place outside of New York. The last Tyco meeting that he attended in New York was on October 13, 1999. The CIT transaction was approved by Tyco at a Board meeting in Bermuda, its place of incorporation since 1997.
To support the assertion of personal jurisdiction and venue in this district, Tyco points to Walsh's regular attendance at Tyco board meetings in New York through 1997, and attendance at a board committee meeting in New York in 1999. It asserts that Walsh negotiated payment of the $20 million fee in telephone calls with Kozlowski and Tyco's Chief Financial Officer while the latter two men were in New York. The invoice that Walsh prepared for payment of the fee was addressed to Tyco's Treasurer in New York, although sent by Walsh to Florida for transmittal to New York. While in New York, the Treasurer approved the payment. Tyco also relies on the fact that the CIT acquisition was negotiated and closed in New York.
Discussion
A. Timeliness
Tyco argues that the defendant's motion to dismiss is procedurally improper since the motion was filed eleven days after the defendant had answered. There are generally three means by which a party may challenge venue or personal jurisdiction: 1) a timely motion under Rule 12(b), Fed.R.Civ.P., 2) a motion under Rule 56, Fed.R.Civ.P., or 3) a request for an adjudication of disputed jurisdictional facts, either at a hearing pursuant to Rule 12(d), Fed.R.Civ.P., or in the course of a trial on the merits. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990) (personal jurisdiction).
The Federal Rules of Civil Procedure require that a motion based upon any of the defenses under Rule 12(b), including motions under Rule 12(b)(2) for lack of personal jurisdiction and under Rule 12(b)(3) for improper venue, "shall be made before pleading if a further pleading is permitted." Rule 12(b), Fed.R.Civ.P. A motion based on Rule 12(b)(2) or Rule 12(b)(3) is therefore untimely when it is served after the answer. Rule 12(b), Fed.R.Civ.P.; see Beacon Enterprises, Inc. v. Menzies, 715 F.2d 757, 768 (2d Cir. 1983) (personal jurisdiction).
The defendant's argument that untimely motions under Rule 12(b) can be construed as motions under Rule 12(c) is misplaced. Untimely Rule 12(b) motions may only be converted to Rule 12(c) motions if they assert non-waivable defenses. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001). A defense of lack of jurisdiction over the person or improper venue is a waivable defense. See Rule 12(h), Fed.R.Civ.P.
The defendant's reliance on the decision in Saldanha is unpersuasive. See Saldanha v. Baidroy, No. 91-6413 (PKL), 1992 WL 147669 (S.D.N.Y. June 15, 1992). In Saldanha, the defendants, realizing that they could not move under Rule 12(b)(2) since they had already filed their answer, moved pursuant to Rule 12(c) for judgment on the pleadings for lack of personal jurisdiction. Id. at *2. The district court, in an exercise of discretion, essentially converted the motion to a request for a hearing pursuant to Rule 12(d). Id.
The defendant has not requested that his motion be converted to a Rule 12(d) motion. Even if he had, that request would be premature given the plaintiff's request for discovery. Federal trial courts have broad discretion to grant discovery to resolve issues of personal jurisdiction. Koehler v. Bank of Bermuda, 101 F.3d 863, 867 (2d Cir. 1996); Lehigh Valley Indus., Inc. v. Birenbaum, 527 F.2d 87, 93 (2d Cir. 1975). New York courts are encouraged to permit discovery to resolve the issue of personal jurisdiction over a nondomiciliary defendant under New York law. Peterson v. Spartan Indus., Inc., 33 N.Y.2d 463, 467 (1974). To guide the parties should they seek to pursue these issues during the discovery period, a brief discussion of the governing standard for personal jurisdiction and venue follows.
B. Personal Jurisdiction
Tyco relies on two provisions in New York's long arm statute to obtain personal jurisdiction over Walsh. Tyco asserts general jurisdiction over Walsh under N.Y. C.P.L.R. § 301 (2001) ("Section 301") based on his attendance at Tyco board meetings in New York. It also asserts specific jurisdiction under N.Y. C.P.L.R. § 302(a)(1) (2001) ("Section 302(a)(1)") based on Walsh's actions directed at New York in connection with the fee.
In a diversity case, the issue of personal jurisdiction must be determined according to the law of the forum state. See Agency Rent A Car Sys., Inc. v. Grant Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996). "If the exercise of jurisdiction is appropriate under [the state's statutes], the court then must decide whether such exercise comports with the requisites of due process." Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997).
1. General Jurisdiction
New York law is not settled on whether a natural person may be subject to general jurisdiction under Section 301 based upon "doing business". First Capital Asset Mgmt. v. Brickellbush, Inc., 218 F. Supp.2d 369, 392 n. 115 (S.D.N.Y. 2002); see also Laufer v. Ostrow, 55 N.Y.2d 305, 313 (1982). Even assuming that general jurisdiction does apply to natural persons, the plaintiff must still establish that the defendant conducted business in New York as an individual and not simply as a corporate officer. Laufer, 55 N.Y.2d at 313.
2. Transacting Business in New York
Section 302(a)(1) allows the exercise of personal jurisdiction over an out-of-state defendant if the defendant "transacts any business within the state" and the cause of action "arises from" that business activity. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). In order to meet the transacting business element under Section 302(a)(1), a plaintiff must show that the defendant "purposefully availed himself of the privilege of conducting activities within New York and thereby invoked the benefits and protections of its laws." Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 787 (2d Cir. 1999) (citation omitted). A defendant "need not be physically present" in the state in order for there to be jurisdiction over him. Id. at 788 (citation omitted). To find jurisdiction, however, "there must be some transaction attributable to the one sought to be held which occurs in New York." Id. at 787 (citation omitted) (emphasis in original). A single purposeful act in New York can be sufficient to support jurisdiction. See Longines-Wittnauer Watch Co. v. Barnes Reinecke, Inc., 15 N.Y.2d 443, 456 (1965). On the other hand, "[n]o single event or contact connecting defendant to the forum state need be demonstrated; rather, the totality of all defendant's contacts with the forum state must indicate that the exercise of jurisdiction would be proper." CutCo, 806 F.2d at 365; see George Reiner Co. v. Schwartz, 41 N.Y.2d 648, 650 (1977). The requisite "minimum contacts" must provide a fair warning to the defendant of the possibility of being subject to the jurisdiction of New York courts. See Kreutter v. McFadden Oil Corp., 527 N.Y.S.2d 195, 198 (1988) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)).
Section 302(a) states:
As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state.
CPLR § 302(a).
Tyco asserts that Walsh engaged in a pattern of activity which demonstrates that he transacted business within New York. Tyco's contention is based primarily upon the fact that the defendant negotiated and consummated his fee agreement in telephone calls with Tyco personnel working in New York and that he directed his invoice for payment to New York.
Generally, telephone contacts between a nondomiciliary defendant and a New York party are insufficient by themselves to confer jurisdiction under Section 302(a)(1). Fiedler v. First City Nat'l Bank, 807 F.2d 315, 317-18 (2d Cir. 1986). A nondomicilary defendant will be subject to jurisdiction under Section 302(a)(1), however, if the defendant uses these telephone communications to deliberately "project" himself into business transactions occurring within the State. See Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 18 (1970) (defendant projected himself into art auction in State by participating in bidding by telephone). In order for these telephone contacts to sustain jurisdiction, the defendant must do more than place an order or engage in business negotiations regarding a contract whose center of gravity is outside of the state. Fiedler, 807 F.2d at 317-18. Rather, he must use the "telephonic link" as a means of projecting himself into the "local commerce" of the state. Id. at 317.
C. Venue
The defendant asserts that this District is not the proper venue for this case since most of the alleged events at issue occurred in New Jersey. The plaintiff bears the burden of establishing proper venue once venue has been challenged by the defendant. Fisher v. Hopkins, No. 02-7077(CSH), 2003 WL 102845, at *2 (S.D.N.Y. Jan. 9, 2003); TBV Holdings Ltd. v. Schey, No. 02-1122 (BSJ), 2002 WL 1733649, at *1 (S.D.N.Y. July 26, 2002).
In order for venue to be proper, "a substantial part of the events or omissions giving rise to the claim" must have occurred in the judicial district where venue is sought. 28 U.S.C. § 1391(a)(2); Hopkins, 2003 WL 102845, at *2. The "substantial part" standard can be "be satisfied by a communication transmitted to or from the district in which the cause of action was filed, given a sufficient relationship between the communication and the cause of action." TBV Holdings, 2002 WL 1733649, at *1 (citation omitted).
D. Transfer
Section 1404(a) of Title 28, United States Code, allows for a transfer of venue "for the convenience of parties and witnesses, in the interest of justice." 28 U.S.C. § 1404(a) (2002). Such motions are in the court's discretion to grant or deny and are "'determined upon notions of convenience and fairness on a case-by-case basis.'" Hall v. South Orange, 89 F. Supp.2d 488, 493 (S.D.N.Y. 2000) (quoting In re Cuyahoga Equip. Corp., 980 F.2d 110, 117 (2d Cir. 1992)). Plaintiff's choice of forum is entitled to great weight and should not be disturbed except when the balance of public and private interest factors clearly weighs in favor of trial in an alternative forum. Piper Aircraft v. Reyno, 454 U.S. 235, 255-57 (1981).
Defendant has not shown that he would be seriously inconvenienced or that it would be unfair for him to litigate this case in New York. Indeed, the defendant has not presented any argument to support his motion for transfer. Based on this and the facts in the record, the defendant's motion for transfer is denied.
Conclusion
The defendant's motions to dismiss based on improper venue and lack of personal jurisdiction and his motion for transfer are denied. The plaintiff's cross-motion for leave to amend its complaint is denied as moot.