Opinion
9693/08.
Decided December 15, 2008.
Upon the foregoing papers, in this putative class action brought by plaintiff Advanced Medical and Alternative Care, P.C. (plaintiff) against defendants New York Energy Savings Corp., doing business as U.S. Energy Savings Corp. (NYESC) and Energy Savings Income Fund (ESIF), alleging deceptive business practices and false advertising with respect to utility cost savings, NYESC moves, pursuant to CPLR 7503, to stay these proceedings and compel arbitration, or, in the alternative, pursuant to CPLR 3211 (a) (1), (5), and (7), to dismiss plaintiff's complaint. ESIF separately moves for an order, pursuant to CPLR 3211 (a) (8), to dismiss plaintiff's complaint as against it for lack of personal jurisdiction over it, or, in the alternative, pursuant to CPLR 7503, to stay these proceedings and compel arbitration. Plaintiff cross-moves, pursuant to CPLR article 9, for class action certification.
By order dated August 6, 2008, the motion by defendant Consolidated Edison Co. of New York, Inc. (Con Ed) to dismiss plaintiff's complaint as against it was granted on consent, upon a stipulation of discontinuance signed by all of the parties. By the same order, the motion by proposed intervenor New York State Public Service Commission (the Public Service Commission) to intervene in this action was denied for failure to appear for argument. In any event, in light of the discontinuance of the action as against Con Ed, the relief requested in the Public Service Commission's motion was rendered moot.
Elliot L. Lewis, Esq., Law Offices of Joseph M. Lichtenstein, PC, Attorneys for Plaintiff, Advanced Medical and Alternative Care, Mineola, NY.
Charles E. Dorkey III, Esq., Attorney for Defendant, New York Energy Savings Corp and Energy Savings Income Fund, New York, NY.
Shira R. Rosenblatt, Esq., Attorneys for Defendant, Consolidated Edison Co., New York, NY.
Plaintiff is a small medical practice in Brooklyn, New York. NYESC is an independent energy supply company (ESCO), which is a wholly-owned subsidiary of ESIF, a limited purpose trust. Oksana Aron, M.D. (Dr. Aron) is plaintiff's principal and its chief executive officer (CEO). In March 2006, Dr. Aron obtained a copy of one of the NYESC's promotional fliers and, after reading it, contacted NYESC and asked it to send her more information about its Electricity Price Protection Program. NYESC sent Dr. Aron a cover letter dated March 30, 2006 and a proposed form Customer Agreement. In the March 30, 2006 cover letter, NYESC stated that "[NYESC] and its affiliates supply over half a million North American consumers with fixed price natural gas and electricity agreements and have collectively saved customers hundreds of millions of dollars." NYESC quoted plaintiff a price at the rate of 13.00 cents per kilowatt hour (kwh) for a four or five-year term for its electricity program, and instructed Dr. Aron to fill out the enclosed Customer Agreement and to return it no later than April 21, 2006. It also stated that "[a]s a [NYESC] customer, you will enjoy the peace of mind of knowing that throughout the term of your agreement, your commodity prices will not rise."
On April 3, 2006, Dr. Aron, as plaintiff's CEO and its authorized signatory, executed the Customer Agreement on behalf of plaintiff, and checked off the box in the Customer Agreement, stating that plaintiff was a business. Plaintiff, in the Customer Agreement, signed up for NYESC's Electricity Price Protection Program for an initial period of four years. The Customer Agreement, under "Customer Acknowledgments," provided, among other things, that "Customer acknowledges that . . . Customer has read and agrees to this entire Agreement including the terms and conditions, attached."
The Customer Agreement provided that plaintiff, as the Customer, appointed NYESC, as its exclusive supplier and agent for all purposes relating to the supply of electricity to plaintiff's address. Under the terms of the Customer Agreement, plaintiff "agreed that the fixed component of the cost of the electricity commodity for which [it] w[ould] be billed pursuant to this Agreement shall be 13.00 cents/kwh (the price')," and that it would "also be required to pay a Variable Charge" described in paragraphs 4 and 5 of the Customer Agreement, which plaintiff was "strongly advised to read."
The Customer Agreement gave plaintiff the right to cancel the transaction, without any penalty or obligation, within three business days from the date of the transaction. Under "Customer Acknowledgments," the Customer Agreement provided that the "Customer acknowledges that . . . if Customer breaks this Agreement during the Term, Customer will have to pay to [NYESC] an Exit Fee" and "strongly advise[d the Customer] to read para[graph] 9 . . . regarding the amount of the Exit Fee." Paragraph 9 of the Customer Agreement, entitled "Default, Termination and Liquidated Damages," provided that if the Customer changed its supplier during the Term of the Agreement, it would be liable to pay liquidated damages in the amount of 1.5 cents per kwh for each kilowatt hour of Customer's Future Consumption, which it agreed was a genuine pre-estimate of the damages that would be suffered by NYESC and was designated to reimburse NYESC for its losses.
Paragraph 15, entitled "Miscellaneous," in pertinent part, provided that:
"This Agreement contains the entire agreement between [NY]ESC and Customer concerning the supply of Energy to the Location. The contents of [NY]ESC marketing materials do not form part of this Agreement. Customer understands and agrees that marketing materials may become out-of-date or inaccurate; and Customer has not relied upon any marketing materials in executing the Agreement . . . Customer agrees that there are no verbal or other representations except as contained in this Agreement."
Paragraph 14, entitled "Dispute Resolution," provided that if a dispute between the Customer and NYESC "c[ould] not be resolved within 45 days, it may be submitted to the DPS [i.e., Department of Public Service] pursuant to its complaint handling procedures," and that "[r]esidential customers are protected by HEFPA provisions." It further provided:
"For non-residential customers, Customer agrees to submit exclusively to binding arbitration. Such arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the AAA'), before a panel of three arbitrators to be chosen by the AAA."
Dr. Aron asserts that when plaintiff received its first energy bill, she was disturbed to find that it was significantly higher than normal for her business. Dr. Aron found that by July 2006 and continuing thereafter, plaintiff's utility bills, taking into account both supply and delivery charges, increased substantially under NYESC's Electricity Price Protection Program, with the cost per kilowatt hour being consistently and significantly higher than when plaintiff was obtaining electricity from Con Ed. Dr. Aron points out that in August 2006, plaintiff's utility bill under NYESC's Electricity Price Protection Program was $532.02, as compared to $223.75 in August 2005, when plaintiff had been obtaining its electricity supply from Con Ed.
Dr. Aron claims that at the time she entered into the Customer Agreement, she believed that she would save money on plaintiff's utility bills by her participation in NYESC's Electricity Price Protection Program. Dr. Aron asserts that she relied upon and was misled by NYESC's statements in the March 30, 2006 cover letter (as noted above) that its electricity agreements "have collectively saved customers hundreds of millions of dollars" and that as its customer, plaintiff would "enjoy the peace of mind knowing that throughout the term of [its] agreement, [its] commodity prices w[ould] not rise." Dr. Aron further asserts that she was misled by charts and graphs contained in NYESC's promotional materials, which purported to show how customers would save money through participation in the Electricity Price Protection Program, and by testimonials from customers indicating that others had saved money on electrical bills. Dr. Aron claims that although she immediately realized at the time she received plaintiff's first electricity bill that it was significantly higher than normal for her business, she then discovered that the Customer Agreement included the liquidated damages clause (quoted above) which would subject plaintiff to a significant penalty if she chose to break the Customer Agreement with NYESC.
On March 25, 2008, plaintiff, purportedly on behalf of others similarly situated, commenced this putative class action against NYESC and ESIF. Plaintiff's complaint alleges that the business practices of NYESC and ESIF are materially deceptive and misleading in violation of General Business Law § 349, and that their promotional materials constitute false advertising in violation of General Business Law § 350. Plaintiff seeks actual damages, injunctive relief from NYESC and ESIF's allegedly deceptive and misleading business practices, invalidation of the liquidated damages provision of the Customer Agreement, and contractual reformation and rescission.
NYESC, in support of its motion, asserts that plaintiff is barred from commencing this action due to the arbitration clause contained in paragraph 14 of the Customer Agreement, under which plaintiff agreed "to submit exclusively to binding arbitration." It is well established that "[w]here parties enter into an agreement and, in one of its provisions, promise that any dispute arising out of or in connection with it shall be settled by arbitration, any controversy which arises between them and is within the compass of the provision must go to arbitration" ( Giahn v Giahn, 290 AD2d 483, 483-484, quoting Matter of Exercycle Corp. [Maratta], 9 NY2d 329, 334; see also CPLR 7501, 7503). New York law favors arbitration ( see Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co. of Am., 37 NY2d 91, 95; Ranieri v Bell Atl. Mobile, 304 AD2d 353, 354), and "[d]ue consideration must be accorded to the policy that arbitration agreements are favored in the law and are to be broadly construed'" ( Harriman Group v Napolitano, 213 AD2d 159, 163, quoting Coudert v Paine Webber Jackson Curtis, 705 F2d 78, 81 [2d Cir 1983]; see also Westinghouse Elec. Group v New York City Tr. Auth., 82 NY2d 47, 54).
Here, the arbitration provision is "clear, explicit and unequivocal" ( Matter of Waldron [Goddess], 61 NY2d 181, 183-184; see also Chaudry v Vital Holding Co. of NY, Inc. , 51 AD3d 844 , 846). The arbitration provision is also broad and encompasses the claims asserted by plaintiff herein ( see Chaudry, 51 AD3d at 846; Hayes v County Bank , 26 AD3d 465 , 467).
Plaintiff, in opposition to NYESC's motion, does not dispute that its claims fall within the scope of the arbitration clause. Plaintiff argues, however, that the court should invalidate the arbitration clause and the Customer Agreement as either unconscionable or a contract of adhesion. Plaintiff bases its claim of unconscionability on its assertion that there is an imbalance in the experience of the parties to the Customer Agreement. Specifically, plaintiff claims that the circumstances of the contract are that customers are generally lacking in knowledge of energy market deregulation, that they may not understand what an ESCO is, and that they may not even be aware of other competitors doing business in the area. Plaintiff contends that the imbalance of experience and knowledge is reflected by the fact that the Customer Agreement requires a four or five-year term, and includes a liquidated damages provision in the event that a customer attempts to cancel the Agreement before the conclusion of the term.
While plaintiff acknowledges that the Customer Agreement contains a three-day cancellation period, it argues that this is an insufficient time for a customer to know how its utility bill will be affected by participation in NYESC's Electricity Price Protection Program. Plaintiff claims that the variable charge for electricity cannot be calculated based upon any information available to the customer, except for the estimate which NYESC provides, and that to the extent that the customer may exceed its normal kilowatt hour usage at any time, there is no way for the customer to predict how the variable charges will fluctuate. Plaintiff contends that by the time a customer receives its first bill, it is already locked into the four or five-year term with the liquidated damages clause.
Plaintiff also argues that the Customer Agreement is a contract of adhesion due to the use of a standard contract for all customers, with a minimum four or five-year term. Plaintiff argues that this mandatory term is unconscionable and that there are several other ESCOs which require only one or two-year terms.
"A determination of unconscionability generally requires a showing that [a] contract was both procedurally and substantively unconscionable when made" ( Gillman v Chase Manhattan Bank, 73 NY2d 1, 10). That is, there must be "some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party'" ( Matter of State of New York v Avco Fin. Serv. of NY, 50 NY2d 383, 389, quoting Williams v Walker-Thomas Furniture Co., 350 F2d 445, 449 [DC Cir 1965]; see also Gillman, 73 NY2d at 10).
Here, there is no evidence that plaintiff lacked meaningful choice or was otherwise pressured into executing the Customer Agreement ( see Thies v Bryan Cave LLP , 35 AD3d 252 , 253; Hayes, 26 AD3d at 466-467; Ranieri, 304 AD2d at 354). There is no allegation that the Customer Agreement was signed as a result of high-pressured tactics ( see Gillman, 73 NY2d at 11). As discussed above, Dr. Arons, an educated physician, was given until April 21, 2006 (three weeks) to decide whether to sign the Customer Agreement. Dr. Arons voluntarily signed the Customer Agreement in her own office where she had time to read and study it ( see Thies, 35 AD3d at 253; Hayes, 26 AD3d at 466-467).
Furthermore, "[i]t does not avail plaintiff to argue that the arbitration provision is unconscionable without offering evidence that [it] could not have chosen another service provider" ( Ranieri, 304 AD2d at 354; see also Thies, 35 AD3d at 253). "Inequality of bargaining power alone does not invalidate a contract as one of adhesion when the purchase can be made elsewhere" ( Ranieri, 304 AD2d at 354; see also Tsadilas v Providian Natl. Bank , 13 AD3d 190 , 191; Brower v Gateway 2000, 246 AD2d 246, 252). Plaintiff concedes that a customer could "simply [have] refuse[d] to sign up with [NYESC] or try and find another ESCO." Indeed, as noted above, plaintiff admits that there are several other ESCOs which require only one or two-year terms. Thus, plaintiff had the opportunity to remain with Con Ed or choose a different ESCO without any adverse consequences ( see Thies, 35 AD3d at 253; Tsadilas, 13 AD3d at 191).
While plaintiff maintains that there was an inequality in bargaining power between it and NYESC, "[a]rbitration agreements are enforceable despite an inequality in bargaining power" ( Tsadilas, 13 AD3d at 191). The purpose of the unconscionability doctrine "is not to redress the inequality between the parties, but simply to ensure that the more powerful party cannot surprise' the other party with some overly oppressive term" ( Brower, 246 AD2d at 253, quoting Matter of State of New York v Avco Fin. Serv. of NY, 50 NY2d 383, 389; see also Gillman, 73 NY2d at 13).
Although Dr. Arons claims to have first discovered the liquidated damages clause after noticing the higher rates charged by NYESC, and that this clause was in fine print, it is, in fact, in the same size type as the rest of the Customer Agreement ( see Tsadilas, 13 AD3d at 191-192). In fact, the top of the Customer Agreement states, in a larger font, that the "Customer is strongly advised to read para[graph] 9 (Default, Termination and Liquidated Damages') regarding the amount of the Exit Fee." Therefore, this liquidated damages term could not have unfairly surprised plaintiff ( see Brower, 246 AD2d at 253). Moreover, the issue of whether the Customer Agreement "as a whole is unconscionable is for the arbitrators, rather than this [c]ourt to decide" ( Tsadilas, 13 AD3d at 191). Thus, given the strong public policy favoring arbitration, the subject arbitration provision cannot be said to be either procedurally or substantively unconscionable ( see Gillman, 73 NY2d at 10-11; Chaudhry, 51 AD3d at 846; Hayes, 26 AD3d at 466-467; Tsadilas, 13 AD3d at 191; Ranieri, 304 AD2d at 354).
Plaintiff further argues that there were ambiguities in paragraph 14, the Dispute Resolution clause, in the Customer Agreement because it, in addition to providing for arbitration, provided that in case of a dispute that is not resolved with NYESC, the Customer may contact the Department of Public Service. Plaintiff asserts that it is, therefore, "not clear whether or not commercial customers may also take advantage of the complaint handling procedures of the Department of Public Service prior to proceeding to arbitration."
This argument is unavailing. Plaintiff does not assert that it attempted to go to the Department of Public Service before filing this lawsuit. In any event, NYESC, in response to this argument, states that both residential and commercial customers may pursue the Public Service Commission's complaint handling procedures, and that it would agree to participate in the Public Service Commission's alternative dispute resolution procedures for this matter.
Plaintiff also contends that the Public Service Commission is referring disputes involving customers and ESCOs to the New York State Attorney General, and that the Public Service Commission is taking the position that the conduct of ESCOs is non-regulatory and refusing to get involved in disputes between customers and ESCOs. Plaintiff claims that NYESC, thus, misrepresented the availability of remedies through the Public Service Commission by implying that the Public Service Commission is available to help customers solve problems, when the Public Service Commission is, in fact, "taking a hands-off attitude towards disputes between customers and ESCOs."
The Public Service Commission, however, in an affirmation by Sean Mullany, its assistant counsel, disputes plaintiff's characterization of its position as being that ESCOs are essentially engaged in unregulated conduct. The Public Service Commission points out that in Opinion No. 97-5 (issued May 19, 1997) (Case 94-E-0952, In the Matter of Competitive Opportunities Regarding Electric Service, 1997 WL 314742), the Public Service Commission established eligibility and filing requirements for ESCOs intending to market electricity in New York State. Specifically, pursuant to Opinion No. 97-5 (at 39-40), ESCOs were required to: (1) comply with required consumer protections; (2) comply with ongoing reporting requirements; (3) keep Department of Public Service staff informed of any material changes in the data contained in an ESCO's initial eligibility application filing; and (4) adhere to the description of their policies and procedures, as set forth in the ESCO's disclosure statement to customers.
Furthermore, in 1999, the Public Service Commission established Uniform Business Practices (UBP) for market participants, including ESCOs, which established basic statewide business procedures in order to provide consistent utility requirements and procedures. Sean Mullany states that ESCOs providing retail electric commodity service in New York must also comply with certain electric commodity price reporting requirements. Sean Mullany also explains that the Public Service Commission is presently considering modifications to the UBP which would, among other things, establish standards for marketing by ESCOs and third-party contractors acting on their behalf, and, on March 19, 2008, issued a notice soliciting comments on revisions to the UBP.
Thus, plaintiff has shown no ambiguity or other basis on which to invalidate the arbitration clause. Therefore, inasmuch as there was no fraud, duress, unconscionability, or wrongful act committed by NYESC in connection with the execution of the Customer Agreement, a valid enforceable agreement to arbitrate exists between the parties ( see Thies, 35 AD3d at 253; Hayes, 26 AD3d at 466-467; Tsadilas, 13 AD3d at 191; Ranieri, 304 AD2d at 354).
Plaintiff additionally argues that NYESC, by moving, in the alternative, to dismiss the complaint, waived its right to arbitration. Plaintiff contends that NYESC is impermissibly attempting to both stay these proceedings through arbitration and litigate the sufficiency of its pleadings before the court.
It is well settled that "[t]he right to arbitrate, like any other contractual right, may be modified, waived, or abandoned" ( Les Constructions Beauce-Atlas v Tocci Bldg. Corp. of NY, 294 AD2d 409, 409-410). "A determination that a party has waived the right to arbitrate requires a finding that the party engaged in litigation to such an extent as to manifest[] a preference "clearly inconsistent with [that party's] later claim that the parties were obligated to settle their differences by arbitration" . . . and thereby elected to litigate rather than arbitrate'"( Flynn v Labor Ready , 6 AD3d 492 , 493, quoting Sherrill v Grayco Bldrs., 64 NY2d 261, 272, quoting Matter of Zimmerman [Cohen], 236 NY 15, 19; see also Spatz v Ridge Lea Assoc., 309 AD2d 1248, 1249 ; Les Constructions Beauce-Atlas, 294 AD2d at 410; Stoianoff v New Am. Lib., 148 AD2d 600, 601).
In the case at bar, NYESC, by moving in the alternative for dismissal of plaintiff's complaint, has not manifested a preference to litigate inconsistent with the present claim that the parties are obligated to settle their differences by arbitration ( see Flynn, 6 AD3d at 493; Stoianoff, 148 AD2d at 601). A defendant "do[es] not waive its right to compel arbitration by serving a motion to dismiss prior to its answer, as a defendant is entitled to have the sufficiency of a complaint tested before a duty to seek arbitration arises" ( Flynn, 6 AD3d at 493; see also Singer v Jefferies Co., 78 NY2d 76, 85-86; Matter of Terminal Auxiliar Maritima, S.A. [Winkler Credit Corp.], 6 NY2d 294, 299; Matter of Haupt v Rose, 265 NY 108, 111; Stoianoff, 148 AD2d at 601). Moreover, NYESC is seeking arbitration as part of its first pre-answer motion to the court. Thus, NYESC has not evinced an affirmative acceptance of the judicial forum, and did not waive its right to compel arbitration ( see Flynn, 6 AD3d at 493; Spatz, 309 AD2d at 1249; Stoianoff, 148 AD2d at 601). Consequently, NYESC's motion, pursuant to CPLR 7503, to compel arbitration and to stay this action as against it, pending arbitration, must be granted.
NYESC's alternative request for dismissal must be addressed before the designated arbitrators ( see CPLR 7501; Matter of Silverman [Benmor Coats], 61 NY2d 299, 307; Matter of Praetorian Realty Corp. [ Presidential Towers Residence], 40 NY2d 897, 898; Spatz, 309 AD2d at 1249; Heiko Law Offs., P.C. v AT T Wireless Servs., Inc., 6 Misc 3d 1040 [A], 2005 NY Slip Op 50356 [U], * 3 [Sup Ct, NY County 2005]). Pursuant to CPLR 7501, "the court shall not consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute."
While plaintiff cross-moves for class action certification, due to the arbitration clause, this request is not properly before the court. The Customer Agreement is silent as to whether class action arbitration is permissible, and the question of whether these claims may be submitted to arbitration as a class action is for the arbitrators to decide ( see Green Tree Fin. Corp. v Bazzle, 539 US 444, 451; Pedcor Mgt. Co., Inc. Welfare Benefit Plan v Nations Personnel of Texas, Inc., 343 F3d 355, 359 [5th Cir 2003]; Flynn, 6 AD3d at 494; Heiko Law Offs., P.C., 2005 NY Slip Op 50356 [U], * 3).
ESIF, in its motion, contends that this New York court has no basis to exercise personal jurisdiction over it. In support of its motion, ESIF has submitted the sworn affidavit of Duncan Stiles, the vice-president of operations for Ontario Energy Savings Corp. (OESC), which is an Ontario corporation that has its principal place of business in Ontario, Canada, and which is named as the administrator of ESIF under ESIF's Declaration of Trust. Duncan Stiles, in his affidavit, attests that ESIF is not a corporation, but is solely an open-ended limited purpose trust established by the Declaration of Trust and governed by the laws of the Province of Ontario, Canada. Duncan Stiles further attests that ESIF has no employees, no board of directors, and no corporate officers. He explains that ESIF was established to hold securities and make cash distributions to its unitholders, and is a publicly traded fund on the Toronto stock exchange in Toronto, Canada.
It is undisputed that ESIF is not licensed to do business in New York. Duncan Stiles attests that ESIF has only one office, located in Toronto, Canada, and that it does not maintain any offices in New York or have any bank accounts in New York. According to Duncan Stiles, ESIF does not contract anywhere to supply any goods or services in New York, does not solicit any business in New York, and does not distribute any goods or merchandise in New York. Duncan Stiles also asserts that ESIF does not own, use, or possess any real property in New York and has no assets located in New York. ESIF argues that this court, therefore, cannot exercise long-arm jurisdiction over it, and must dismiss plaintiff's complaint as against it for lack of personal jurisdiction.
In opposition to ESIF's motion, plaintiff relies upon CPLR 302 (a) (1), which provides that "a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent . . . transacts any business within the state." Plaintiff does not dispute that ESIF did not directly transact any business with plaintiff within New York. The Customer Agreement was entered into by plaintiff solely with NYESC, not with ESIF, and only NYESC's name, and not ESIF's name, is on any of the promotional materials given to plaintiff. Plaintiff argues, however, that ESIF transacts extensive business in New York through its wholly owned subsidiary, NYESC, as its agent. It is undisputed that NYESC is ESIF's wholly owned subsidiary and affiliate, that NYESC is a Delaware corporation which is licensed to do business in the State of New York, that NYESC has employees and several offices in New York, and that NYESC performs marketing in New York.
Plaintiff, thus, contends that this New York court can exercise personal jurisdiction over ESIF based upon NYESC's transaction of business with it, as ESIF's agent.
It is well established, however, that "[a] finding of agency for jurisdictional purposes will not be inferred from the mere existence of a parent-subsidiary relationship" ( Porter v LSB Indus., 192 AD2d 205, 213; see also Frummer v Hilton Hotels Intl., 19 NY2d 533, 538, cert denied 389 US 923; Insurance Co. of N. Am. v EMCOR Group, Inc ., 9 AD3d 319 , 320). "In order for the subsidiary's activities to warrant the exercise of jurisdiction over the parent, the parent's control over the subsidiary's activities must be so complete that the subsidiary is, in fact, merely a department of the parent'" ( Porter, 192 AD2d at 213, quoting Delagi v Volkswagenwerk AG. of Wolfsburg, Germany, 29 NY2d 426, 432; see also Public Adm'r of County of NY v Royal Bank of Can., 19 NY2d 127, 130-132; Taca Intl. Airlines, S.A. v Rolls-Royce of England, 15 NY2d 97, 99-102; Rotoli v Domtar, Inc., 224 AD2d 939, 940). "A subsidiary will be considered a mere department' only if the foreign parent's control of the subsidiary is so pervasive that the corporate separation is more formal than real" ( Porter, 192 AD2d at 213; see also H. Heller Co., Inc. v Novacor Chems, Ltd., 726 F Supp 49, 54 [SD NY 1988], affd 875 F2d 856 [2d Cir 1989]).
"Generally, there are four factors used in determining whether a subsidiary is a mere department of the foreign parent: (1) common ownership and the presence of an interlocking directorate and executive staff; (2) financial dependency of the subsidiary on the parent; (3) the degree to which the parent interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities; and (4) the degree of the parent's control of the subsidiary's marketing and operational policies." ( Porter, 192 AD2d at 213; see also Volkswagenwerk Aktiengesellschaft v Beech Aircraft Corp., 751 F2d 117, 120-122 [2d Cir 1984]).
Here, as previously noted, there is complete ownership of the stock of NYESC by ESIF. However, this factor is intrinsic to the parent-subsidiary relationship, and thus, by itself, is not determinative ( see Moreau v RPM, Inc ., 20 AD3d 456, 457; Rotoli, 224 AD2d at 940; Porter, 192 AD2d at 214). Furthermore, there are no interlocking directors, officers, or employees since, as a trust rather than a corporation, ESIF lacks any such directors, officers, and employees.
There is no financial dependency of NYESC on ESIF. Rather, it appears that the parent, as a trust, is financially dependent on its subsidiary ( see Porter, AD2d at 214). In addition, Duncan Stiles attests that ESIF does not pay the salaries of NYESC's personnel, pay NYESC's other expenses or losses, provide funds to NYESC, or lend NYESC money.
There is also no showing that ESIF interferes in the selection and assignment of NYESC's executive personnel or that NYESC does not observe corporate formalities as a separate corporation independent from the trust, ESIF ( see Porter, 192 AD2d at 214). As explained by Duncan Stiles, under the terms of the Declaration of Trust, any indirect control ESIF could have had over NYESC was expressly delegated to ESIF's administrator, OESC. Duncan Stiles also attests that ESIF is not vested with the authority to appoint or remove the directors or officers of NYESC, and does not give directions to NYESC's board of directors or officers, or interfere in the hiring or firing of any of its employees. These assertions are undisputed. While plaintiff claims that both ESIF and NYESC share a Mississauga, Ontario address, the sharing of an address in Ontario does not establish that NYESC is not a separate corporate entity from ESIF.
Finally, plaintiff has not demonstrated that ESIF exercises any control over NYESC's marketing policies, and ESIF has shown that it does not control NYESC's day-to-day operations. Specifically, Duncan Stiles states that NYESC maintains its own business contacts, and contracts for the wholesale supply of goods and sells those goods to consumers, and that ESIF does not interfere or control any such activities. Thus, considering the above factors, the court concludes that ESIF's control over NYESC is not so pervasive as to render NYESC a mere department of ESIF ( see Rotoli, 224 AD2d at 940; Porter, 192 AD2d at 213).
Moreover, in order for an agency relationship between a foreign corporation and a domestic corporation to supply a jurisdictional predicate, it must be shown that the New York corporation "does all the business which [the foreign corporation] could do were it [in New York] by its own officials"( Frummer, 19 NY2d at 537; see also Uebler v Boss Media AB, 432 F Supp 2d 301, 305 [ED NY 2006]). Plaintiff asserts that ESIF's company profile in an unidentified disclosure document lists NYESC as a "wholly owned" subsidiary of ESIF, and states that ESIF, "[t]hrough its subsidiaries and affiliates . . . markets natural gas to residential customers and small to mid-sized commercial businesses in Ontario, Manitoba, Alberta, Illinois and New York . . . [and ESIF] also markets electricity to residential and small to mid-sized commercial customers in Ontario, Alberta, New York and Texas." Plaintiff also points out that in ESIF's company profile, it reported that in the last fiscal quarters of 2007, "[t]he fund added 99,000 gross customers, two-thirds of which were in the United States." Plaintiff states that many of these customers were from the New York market. Plaintiff argues that this shows that NYESC does for ESIF all the business that ESIF could do if it were itself in New York.
Plaintiff's argument, however, must be rejected since ESIF, in its company profile, also states that it is an "open-ended, limited-purpose trust established under the laws of Ontario to hold securities and to distribute the income of its wholly owned subsidiaries and affiliates", which include NYESC. Thus, NYESC cannot be performing the same activities that ESIF would have performed had it been doing or transacting business in New York since, as a trust existing under the laws of Ontario, ESIF's business is limited to investment for its unitholders. Specifically, ESIF's business is owning securities and distributing money, which differs from the business of NYESC, the buying, supplying, and selling of electricity to its customers ( see Porter, 192 AD2d at 214). Consequently, an agency relationship between ESIF and NYESC, which would support jurisdiction in this Court over ESIF has not been demonstrated ( see Pappas Marshall v Ross Logistics, 222 AD2d 424, 425; Porter, 192 AD2d at 214).
Plaintiff further contends that jurisdiction may be exercised over ESIF because it owns NYESC, itself, and, therefore, owns an asset located in New York. This contention is without merit. "[M]ere ownership by a foreign [entity] of the stock of a subsidiary doing business in New York . . . does not subject the foreign [entity] to the jurisdiction of New York" ( Goldsmith v Sotheby's, Inc., 14 Misc 3d 1223 [A], 2007 NY Slip Op 50143 [U], *7 [2007]).
Plaintiff also complains that ESIF has not submitted the Declaration of Trust document to the court. However, the documents submitted by plaintiff show that ESIF is, in fact, a limited purpose trust. Furthermore, the plaintiff bears the burden of establishing personal jurisdiction ( see Brandt v Toraby, 273 AD2d 429, 430), and plaintiff has not rebutted the facts set forth in Duncan Stiles's sworn affidavit by its mere speculation ( see e.g. Glenn v SB Partners LLC, 18 Misc 3d 1123 [A], 2008 NY Slip Op 50163 [U], * 8-9 [Sup Ct, Nassau County 2008]). Thus, dismissal of this action against ESIF, pursuant to CPLR 3211 (a) (8), is mandated ( see Moreau, 20 AD3d at 457; Insurance Co. of N. Am., 9 AD3d at 320).
Furthermore, with respect to liability, it is noted that there is no basis to impose liability upon ESIF by piercing the "corporate" veil ( see Porter, 192 AD2d at 215). This is not a case where the subsidiary is undercapitalized, where the corporate formalities have not been observed, or where the subsidiary was misused to perpetuate a fraud or to inflict injury ( see generally Walkovszky v Carlton, 18 NY2d 414, 418; Andejo Corp. v South St. Seaport Ltd. Partnership , 40 AD3d 407 , 407; Goldsmith, 2005 NY Slip Op 51702 [U], *6).
In any event, even if dismissal were not mandated with respect to ESIF, plaintiff could not pursue its claim as against it in this court action. Although ESIF was not a signatory to the Customer Agreement, a nonsignatory defendant is entitled to the benefit of the arbitration provision contained in the Customer Agreement since plaintiff's claim against ESIF is based upon that Agreement ( see Ranieri, 304 AD2d at 354).
Accordingly, NYESC's motion, pursuant to CPLR 7503, to stay these proceedings and compel arbitration is granted. ESIF's motion, for an order, pursuant to CPLR 3211 (a) (8), to dismiss plaintiff's complaint as against it for lack of personal jurisdiction, is granted. In view of the granting of these motions, plaintiff's cross motion, pursuant to CPLR 902, for class action certification, is rendered moot.
This constitutes the decision, order, and judgment of the court.