Opinion
2008-1619.
Decided June 24, 2010.
McDONOUGH ARTZ, P.C., By: Kevin F. McDonough, Esq., Attorneys for Plaintiffs, Binghamton, New York.
D'AMATO LYNCH, LLP, By: David A. Boyar, Esq., Attorneys for Defendants, New York, New York.
JAMPOL SCHLEICHER JACOBS PAPADAKIS, LLP, By: Steven M. Jampol, Esq., Attorneys for Defendants, Alpharetta, GA.
This action arises from the sale by one of the plaintiffs, Windsor United Industries, LLC (WU), a Georgia limited liability company, of a manufacturing business located in Georgia to Windsor Fixtures, Inc. (WF), a Georgia corporation, on March 31, 2008. The individual plaintiffs are members of WU. Plaintiffs commenced this action against Healey, the president and principal shareholder of WF, and James Heavern and Michael Heavern (the Heavern defendants), former members of WU employed by WU prior to the sale and by WF thereafter, alleging that defendants conspired to defraud plaintiffs, in a scheme principally involving intentional misrepresentation of the value of the inventory included in the sale. Defendants — each a Georgia domiciliary — have made pre-answer motions to dismiss the action for lack of personal jurisdiction, on forum non conveniens grounds, or based on an agreement to arbitrate the dispute. Healey additionally seeks dismissal for failure to state a cause of action, and for failure to plead fraud in sufficient detail.
Defendants' motions for dismissal on the basis of an agreement to arbitrate are premature, inasmuch as there has been no arbitration award rendered. A party which, as here, seeks to preclude litigation of a dispute on the basis that it is subject to an agreement to arbitrate, should move for an order to compel arbitration, which operates to stay the action pending completion of the arbitration ( see CPLR 3211[a][5] [motion to dismiss based on arbitration and award] [emphasis supplied]; CPLR 7503[a]; Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3211:21, at p. 39). Accordingly, those branches of defendants' motions based on the agreement to arbitrate are deemed motions to compel arbitration under CLPR 7503(a).
PERSONAL JURISDICTION
CPLR 302 (a)(1) authorizes the exercise of long-arm jurisdiction over a non-domiciliary defendant who has transacted any business within this State, so long as plaintiff's cause of action arises from that business and the plaintiff demonstrates the existence of sufficient contacts between the defendant and New York to provide a constitutional basis for the exercise of jurisdiction. In that regard, a meeting in New York — even for just one day — at which the parties discuss the transaction which gives rise to the cause of action is sufficient to subject a party to the jurisdiction of a New York court ( Stardust Dance Prods., Ltd. v Cruise Groups Intl., Inc. , 63 AD3d 1262 , 1264, citing Presidential Realty Corp. v Michael Sq. W., 44 NY2d 672, 673, L R Exploration Venture v Grynberg, 22 AD3d 221, lv denied 6 NY3d 749, Giant Group v Arthur Anderson LLP , 2 AD3d 189 , 190, Fabrikant Sons v Adrianne Kahn, Inc., 144 AD2d 264, 264 — 265 [1988]; see also George Reiner Co. v Schwartz, 41 NY2d 648).
With respect to Healey, such contacts are apparent from the undisputed evidence that he was present in New York on two separate occasions to discuss the potential transaction prior to execution of the final asset purchase agreement at closing on March 31, 2008. He visited Barry Newman, a plaintiff and the managing member of WU, on November 12, 2007 and November 13, 2007, when he obtained financial records regarding WU's business operations, visited the manufacturing plant it operated in Windsor, New York, and expressed an interest in acquiring its Georgia operations (Affidavit of Barry G. Newman, sworn to September 30, 2008 [Newman Affidavit], ¶¶ 29 — 39; Affidavit of William J. Healey, sworn to August 1, 2008 [Healey Affidavit], ¶¶ 7, 8). After that initial visit, the parties continued to exchange information, which resulted in a preliminary agreement dated January 30, 2008, signed by Newman on February 11, 2008 and by Healey on February 12, 2008 (complaint, Exhibit B; Newman Affidavit, ¶¶ 39 — 40, Healey Affidavit, ¶¶ 9 — 10). Healey's second visit to New York occurred on March 20 and 21, 2008, when he returned to meet with WU's staff and review a "whole range of payroll, accounts receivable, accounts payable and general ledger reports" (Healey Affidavit, ¶ 12; see also id., ¶ 13; Newman Affidavit, ¶¶ 42, 50 — 51). Accordingly, Healey's motion to dismiss for lack of personal jurisdiction is denied.
That Healey may have been acting on behalf of WF during his visits to New York does not relieve him from responding to claims arising from such conduct that are asserted against him in his individual capacity ( see Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 — 472 [1988]).
With respect to the Heavern defendants, plaintiffs have not alleged, other than in conclusory fashion, that they were physically present in New York during negotiations for WU's sale of the Georgia business to WF ( see Affidavit of Dennis C. Garges, sworn to September 30, 2008 [Garges Affidavit]; see also Newman Affidavit, Exhibit 3, ¶ 2; Affidavit of Thomas Lonzo, CPA, sworn to September 30, 2008, ¶ 9; Affidavit of James Heavern, sworn to August 1, 2008 [J. Heavern Affidavit], ¶ 15; Affidavit of Michael Heavern, sworn to August 1, 2008, ¶ 11). Rather, they attempt to establish sufficient contacts to render the Heavern defendants subject to New York jurisdiction, pursuant to CPLR 302(a)(1), by first arguing that the acts of Healey may be imputed to the Heavern defendants under an agency theory. That argument fails because plaintiffs have not provided any evidence that Heaverns exercised sufficient control over Healey to make him their agent ( see Polansky v Gelrod , 20 AD3d 663 ).
Plaintiffs also contend that Heaverns are subject to jurisdiction, pursuant to CPLR 302(a)(1), by reason of their roles as members and employees of WU, which operated plants in both New York and Georgia. Notably, Heaverns had no responsibility for, nor performed any duties at, WU's Windsor plant ( see complaint, ¶¶ 11, 12, 14; Newman Affidavit, ¶¶ 21, 24; Garges Affidavit, ¶¶ 1, 3, 6). Their acts as members and employees of WU in the regular operation of the Georgia plant — in Georgia — during the relevant time period do not constitute contacts with New York, and, in any event, lack the substantial nexus to the claims asserted in this action required to provide a basis for asserting personal jurisdiction ( see generally Johnson v Ward , 4 NY3d 516 ; Talbot v Johnson Newspaper Corp., 71 NY2d 827; Polansky v Gelrod, 20 AD3d at 664). Plaintiffs also argue that the pledge of assets to secure indebtedness for which James Heavern was liable — in connection with WU's acquisition of the Georgia business from Fidelity Bank in December 2005 — is a contact with New York on which personal jurisdiction may be based. However, plaintiffs have not shown that Heavern availed himself of the privilege of conducting activities in New York by participating in negotiating the terms of the acquisition financing with a lender in New York ( see Newman Affidavit, ¶¶ 9, 10). Absent a purposeful contact with New York, his knowledge of the pledge of assets is insufficient to confer jurisdiction. In addition, plaintiffs failed to demonstrate that the pledge of New York assets, which enabled WU to acquire the Georgia assets, bears any nexus to WU's sale of the Georgia assets nearly three years later, particularly in light of the fact that the New York assets continue to be pledged as security for WU's indebtedness. Accordingly, plaintiffs have not shown that the Heavern defendants are subject to New York jurisdiction pursuant to CPLR 302(a)(1).
It bears noting that Heaverns sold their membership interest in WU on March 5, 2008, prior to completion of the transaction (Affidavit of Howard Rittberg, Esq., sworn to September 29, 2008 [Rittberg Affidavit], ¶ 17).
Similarly unavailing is plaintiffs' contention that the Heavern defendants' awareness that Fidelity Bank required ratification of the security interest in WU's plant and equipment in New York as a condition of releasing the assets of the Georgia operation for sale to WF is evidence of a contact with New York (Rittberg Affidavit, ¶ 16). Notably, plaintiffs do not allege that Heaverns had any role in negotiating the terms of the sale with WU's lender — within or without New York — or that ratification of the previously existing security interest conferred a new benefit to Heaverns which they did not already enjoy as a result of the initial pledge of assets in 2005.
Plaintiffs' attempts to assert that New York courts have jurisdiction over the Heavern defendants by virtue of commission of a tort, either within or without New York State, also fail. To obtain jurisdiction under CPLR 302(a)(2), the tortious acts must have occurred in New York. Here, the alleged fraud occurred in Georgia — where the alleged misrepresentations regarding inventory valuation were made — notwithstanding plaintiffs' argument that such conduct was intended by defendants to be relied upon by plaintiffs in New York ( see Kramer v Vogl, 17 NY2d 27; Polansky v Gelrod, 20 AD3d at 664 — 665). To establish jurisdiction based on a tort committed in Georgia, plaintiffs must show that it caused them to suffer injury to person or property within the state. Financial loss in New York — the only injury alleged by plaintiffs — is not an injury on which jurisdiction may be based pursuant to CPLR 302(a)(3) ( Polansky v Gelrod, 20 AD3d at 664 — 665). Accordingly, the motion by the Heavern defendants to dismiss for lack of personal jurisdiction must be, and hereby is, granted.
FORUM NON CONVENIENS
The doctrine of forum non conveniens, codified in CPLR 327, permits a court to stay or dismiss actions which — although jurisdictionally sound — would be better adjudicated elsewhere ( Islamic Republic of Iran v Pahlavi, 62 NY2d 474, cert denied 469 US 1108; Jackam v Nature's Bounty, Inc. , 70 AD3d 1000 ). In a motion to dismiss on the ground of forum non conveniens, the movant bears the burden of demonstrating relevant public or private interest factors which militate against acceptance of the action. Factors to be considered include, among others, "the residency of the parties, the potential hardship to proposed witnesses, including, especially nonparty witnesses, the availability of an alternative forum, the situs of the actionable events, the location of the evidence, and the burden that retention will impose on New York courts" ( Jackam v Nature's Bounty, Inc., 70 AD3d at 479 [quotation omitted]).
Here, review of the applicable factors shows that the New York is an inconvenient forum and that another forum is available which has more significant contacts with the dispute. While several of the plaintiffs may be New York residents, plaintiff WU is a Georgia limited liability company, and all of the defendants are Georgia domiciliaries. The transaction involved the sale and purchase of assets located solely in Georgia. Potential witnesses to the central issue — valuation of the inventory — are the individuals who conducted the physical inventory in Georgia, most of whom, including the Heavern defendants and nonparty employees of WU, are not subject to the jurisdiction of this court (J. Heavern Affidavit, ¶ 12; see also complaint, ¶¶ 38, 40; Garges Affidavit, ¶¶ 24 — 25). Under such circumstances, New York is "not a convenient forum for this litigation involving a contract entered into in [Georgia] and entities, persons and events predominately situated there" ( Gonzalez v Victoria Lebensversicherung AG, 304 AD2d 427, lv denied 1 NY3d 506; see also Jackam v Nature's Bounty , 70 AD3d 1000 ).
Two additional factors also weigh in favor of a determination that New York is an inconvenient forum in this case. First, as evidenced by the Georgia choice of law provision and the arbitration clause contained in the contract, the parties themselves recognized that Georgia would provide the most convenient forum for resolution of any post-closing disputes ( see Frontier Mfg. v Comp-Aire Sys., Inc./Joy, 94 AD2d 960; Zurich Ins. Co. v R. Electric, Inc. , 5 AD3d 338 ). Moreover, in light of the determination that the Heavern defendants are not subject to the jurisdiction of this court, the inability to join them in this action could possibly lead to duplicative and inconsistent proceedings were this action allowed to proceed solely against Healey ( see Holness v Maritime Overseas Corp., 251 AD2d 220, 224). Thus, defendant Healey's motion to dismiss on the basis of forum non conveniens is granted.
REMAINING MOTIONS
In light of the foregoing determinations, it is unnecessary to consider defendants' motions to compel arbitration, or defendant Healey's motions to dismiss for failure to state a cause of action and failure to plead fraud with the required specificity.
This decision constitutes the order of the court. The transmittal of copies of this decision and order by the court shall not constitute notice of entry.