Opinion
03 Civ. 2481 (MBM)
November 10, 2003
PAUL H. LEVINSON, McLaughlin Stern, LLP, New York, NY, for Plaintiff
CHRISTOPHER J. SOVAK, Renzulli, Pisciotti Renzulli, LLP, New York, NY, for Defendant
OPINION AND ORDER
Plaintiff A.I. International Corporate Holdings, Ltd., ("A.I."), has sued SurgiCare, Inc. ("SurgiCare") for default and breach of a loan agreement. SurgiCare moves to dismiss for improper venue pursuant to Fed.R.Civ.P. 12(b)(3), or in the alternative, requests transfer of this action to the Southern District of Texas pursuant to 28 U.S.C. § 1404(a) (2000). SurgiCare also asks for an order compelling A.I. to post security for costs pursuant to N.Y. C.P.L.R. § 8501(a) (McKinney 2003). For the reasons set forth below, SurgiCare's motions are denied.
I.
A.I. is a British Virgin Islands corporation whose principal place of business is in the British Virgin Islands. (Compl. ¶ 1) SurgiCare is a Delaware corporation whose principal place of business is in Houston, Texas. (Id. ¶ 2) In July 2002, the parties entered into a loan agreement, pursuant to which A.I. loaned SurgiCare $750,000. (Id. ¶¶ 7-11) Concurrently, the parties executed a Debenture and a Registration Rights Agreement, which imposed certain obligations on SurgiCare. (Id. ¶¶ 7, 10-11) The Debenture and the Registration Rights Agreement contained identical forum selection clauses, in which the parties consented to the exclusive jurisdiction of the state and federal courts of New York City for any disputes arising under the loan agreement. (Jallad Decl. ¶ 11)
These forum selection clauses read as follows:
This [Debenture/Agreement] shall be governed by and construed in accordance with the laws of the State of New York. Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.
(Jallad Decl. ¶ 11)
Both parties were represented by counsel in connection with the loan agreement, which was reached after extensive negotiations. (Id. ¶ 13) Ezzat Jallad, a New York resident, served as A.I.'s authorized agent and representative in all negotiations, dealings, and transactions with Surgicare. (Id. ¶¶ 1-2) Documents relevant to the loan agreement are SEC filings located in Washington, D.C., as well as some unidentified documents in Houston. (ID. ¶ 16; Defendant's Motion to Dismiss for Improper Venue or To Transfer ("Def. Mot.") ¶ 16)
A.I. sues SurgiCare for default and breach, claiming that SurgiCare did not satisfy its obligations under the Debenture and the Registration Rights Agreement. This court has jurisdiction over this matter because the amount in controversy exceeds $75,000 and there is diversity of citizenship between the parties. See 28 U.S.C. § 1332(a)(2).
II.
Surgicare argues first that venue is improper because A.I. lacks capacity to sue in New York. (Def. Mot. ¶¶ 4-6) In support of this claim, Surgicare points to New York's "door-closing" statute, N.Y. Bus. Corp. Law § 1312(a) (McKinney 2003), which prohibits "[a] foreign corporation doing business in this state without authority" from maintaining any action or special proceeding in New York unless it has been authorized to do business in New York and has paid all necessary taxes and fees. Id. An appropriate remedy for a § 1312(a) violation is a conditional dismissal or stay of the action pending cure of the violation. S K Sales Co. v. Nike, Inc., 816 F.2d 843, 853 (2d Cir. 1987).
A.I. admits that it is a foreign corporation (Jallad Decl. ¶ 5), but it contends that § 1312(a) is inapplicable because A.I.'s activities in New York are not substantial and permanent enough to constitute "doing business in this state." N.Y. Bus. Corp. Law § 1312(a). To be "doing business" in New York, a foreign corporation must be engaged in intrastate activity that is permanent, continuous, and regular. Netherlands Shipmortgage Corp., Ltd., v. Madias, 717 F.2d 731, 736 (2d Cir. 1983); Nick v. Greenfield, 299 A.D.2d 172, 173, 753 N.Y.S.2d 45, 46-47 (1st Dep't 2002). This standard is met only if there is ongoing intrastate business activity, or evidence that the corporation has localized some portion of its business activity in New York. Netherlands Shipmortgage, 717 F.2d at 739. "Where a company's activities within New York are merely incidental to its business in interstate and international commerce, section 1312 is not applicable." Storwal Int'l, Inc. v. Thorn Rock Realty Co., 784 F. Supp. 1141, 1144 (S.D.N.Y. 1992) (internal quotation marks omitted). Surgicare has the burden of proving that A.I.'s New York activities are systematic and regular because a foreign corporation is presumed to be doing business where it is incorporated and not in New York. See Nick. 299 A.D.2d at 173, 753 N.Y.S.2d at 47.
Although SurgiCare points out that A.I. is not authorized to conduct business in New York (Def. Mot. ¶ 6), A.I. asserts that (1) it has never maintained an office or place of business in New York, and (2) it has never done any business in New York aside from its loan transactions with SurgiCare, where A.I. was represented by its agent Jallad. (Jallad Decl. ¶¶ 7-8) SurgiCare neither presents evidence that A.I. has conducted additional activity in New York nor disputes A.I.'s characterization of its level of activity in New York. Indeed, SurgiCare's attorney acknowledges that SurgiCare has no information about whether A.I. does business in the United States. (Sovak Aff. at 2)
Because SurgiCare has not even attempted to show that A.I.'s activities in New York are systematic and regular, SurgiCare has not satisfied its burden of proving that A.I. is "doing business" in New York and thus in violation of section 1312(a). See Netherlands Shipmortgage, 717 F.2d at 740 (finding that foreign corporation does not "do business" in New York even if its activities in New York include maintaining New York bank accounts, retaining counsel, occasionally negotiating loans, and partial closing of the loans); Regal Custom Clothiers, Ltd, v. Mohan's Custom Tailors, Inc., No. 96 Civ. 6320 (SS), 1997 WL 370595, at *3 (S.D.N.Y. July 1, 1997) (stating that plaintiffs are not engaged in the "systematic and regular" business required by § 1312 when their only business in New York was the formation of the contract at issue). Accordingly, SurgiCare's motion to dismiss is denied.
III.
SurgiCare argues in the alternative that this case should be transferred to the Southern District of Texas pursuant to 28 U.S.C. § 1404. (Def. Mot. ¶¶ 7-17) Section 1404(a) provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404. A district court has broad discretion to decide whether transfer is warranted in a particular case. See In re Cuyahoga Equip. Corp., 980 F.2d 110, 117 (2d Cir. 1992). When evaluating a motion to transfer venue, this court must determine (1) whether this action could have been brought in the transferee venue, and (2) whether transfer is appropriate for the convenience of the parties and the interest of justice. See 28 U.S.C. § 1404 (a); Lewis v. C.R.I., Inc., 03 Civ. 651 (MBM), 2003 WL 1900859, at *2 (S.D.N.Y. Apr. 17, 2003); Orb Factory. Ltd, v. Design Sci. Toys, Ltd., 6 F. Supp.2d 203, 208 (S.D.N.Y. 1998).
There is no doubt that this action could have been brought in the Southern District of Texas. A civil action may be brought in a judicial district where any defendant resides, provided that all defendants reside in the same state. 28 U.S.C. § 1391 (a). For the purposes of venue, a corporation resides in any judicial district where it is subject to personal jurisdiction when the action is commenced. 28 U.S.C. § 1391(c). Here, SurgiCare's principal place of business is in Houston, Texas, which means that SurgiCare is subject to personal jurisdiction in Texas and resides there. See 28 U.S.C. § 1332(c)(1).
A.I. claims that this action could not have been brought in Texas because each of the parties consented in the forum 'selection clauses to the exclusive jurisdiction of the state and federal courts of New York City. (Jallad Decl. ¶ 12) However, the question of whether venue would be proper or improper in Texas is determined by 28 U.S.C. § 1391, not by the existence of a forum selection clause. See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 28 n. 8 (1988) (suggesting that venue is proper in a district where the requirements of 28 U.S.C. § 1391 are met, even if that district lies outside the exclusive jurisdiction provided for in a forum selection clause); GMAC Commercial Credit, LLC v.Dillard Dep't Stores. Inc., 198 F.R.D. 402, 405 (S.D.N.Y. 2001) (stating that 28 U.S.C. § 1391 determines whether venue is proper, and "[t]he presence of a forum selection clause does not enter into this analysis").
Even though this action could have been brought in the Southern District of Texas, transfer is appropriate only if it serves the interest of justice and the convenience of parties and witnesses. See 28 U.S.C. § 1404 (a). "Section 1404 is intended to place discretion in the district court to adjudicate motions for transfer according to an individualized, case-by-case consideration of convenience and fairness."Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (internal quotation marks omitted). See also In re Cuyahoga, 980 F.2d at 117. In determining whether to exercise their discretion to grant a § 1404 motion to transfer, courts in this district typically consider the following factors: (1) the convenience of the witnesses; (2) the convenience of the parties; (3) the location of relevant documents and the relative ease of access to sources of proof; (4) the locus of the operative facts; (5) the availability of process to compel attendance of unwilling witnesses; (6) the relative means of the parties; (7) the forum's familiarity with the governing law; (8) the weight accorded a plaintiff's choice of forum; and (9) trial efficiency and the interest of justice, based on the totality of the circumstances. E.g. Everest Capital Ltd, v.Everest Funds Mgmt., L.L.C., 178 F. Supp.2d 459, 465 (S.D.N.Y. 2002). Plaintiff's choice of forum should not be disturbed unless defendant makes a clear and convincing showing that the balance of convenience favors transfer. See Orb Factory, 6 F. Supp.2d at 208.
In addition to these factors, this court must consider the loan agreement's forum selection clauses, which state that the federal and state courts of New York City will have exclusive jurisdiction over any disputes arising under that agreement. (Jallad Decl. ¶ 11) Although not dispositive, the presence of forum selection clauses is significant and figures centrally in a district court's determination of whether transfer is appropriate. See Stewart, 487 U.S. at 29, 31. To persuade a court to transfer a case in contravention of valid forum selection clauses, the moving party bears the burden of demonstrating exceptional facts that explain why it should be relieved of its contractual duty. E.g. Third Ave. Trust v. SunTrust Bank, 163 F. Supp.2d 215, 220-21 (S.D.N.Y. 2001); Elite Parfums, Ltd, v. Rivera, 872 F. Supp. 1269, 1272 (S.D.N.Y. 1995).
SurgiCare does not argue that the forum selection clauses are invalid ab initio or result from fraud or overreaching.
SurgiCare has failed to show exceptional facts that establish that transfer is in the interest of justice and more convenient for the parties and witnesses. Although SurgiCare so argues, Texas is more convenient only for SurgiCare and its five Texas-based witnesses; A.I. has no ties to Texas, and its principal witness, Jallad, resides in New York City. (Jallad Decl. ¶ 17) Furthermore, SurgiCare seeks transfer to avoid the cost and effort of transporting witnesses and unspecified documents from Texas. (Def. Mot. ¶¶ 14-15) The "[m]ere inconvenience and expense of travelling are not, standing alone, adequate reasons to disturb the parties' contractual choice of forum." Elite Parfums, 872 F. Supp. at 1272 (internal quotation marks omitted). Importantly, SurgiCare fails to allege any inconveniences that were not foreseeable when it consented to the forum selection clauses. See id. (explaining that travel, even if seriously inconvenient, would have been contemplated by parties when agreeing to a forum selection clause); Third Ave. Trust, 163 F. Supp.2d at 221 (stating that defendant should have anticipated where witnesses and evidence would be located when it agreed to forum selection clauses).
SurgiCare argues also that transfer is appropriate because it would be difficult to obtain process to assure Texas witnesses' attendance in New York. (Def.Mot. ¶ 15) However, SurgiCare does not suggest that its witnesses would testify in New York only if compelled by subpoena. Therefore, the unavailability of process is less significant because it does not necessarily affect SurgiCare's ability to present its case. See Citigroup Inc. v. City Holding Co., 97 F. Supp.2d 549, 562 (S.D.N.Y. 2000) (finding that the unavailability of process is a less forceful consideration where party moving for transfer does not show that its third party witnesses would testify in New York only if subpoenaed). SurgiCare also fails to show that any of its Texas-based witnesses would provide necessary or material testimony, but says only that each witness is "expected to testify about the transaction in question." (Def. Mot. ¶ 14) See Royal Sunalliance v. British Airways, 167 F. Supp.2d 573, 577 (S.D.N.Y. 2001) (explaining courts must consider the materiality, nature, and quality of each witness's testimony, not merely the number of witnesses, in determining whether the convenience of witnesses would favor transfer). Accordingly, SurgiCare has not demonstrated that the unavailability of process will impede in any significant way its ability to present its defense.
In short, SurgiCare's arguments in favor of transfer do not amount to exceptional circumstances that warrant relief from the obligation imposed by the forum selection clauses. As a result, SurgiCare does not satisfy its burden of showing that the interest of justice and the convenience of parties and witnesses weigh in favor of transfer. Therefore, defendant's § 1404 motion is denied.
V.
In its third and final motion, SurgiCare asks this court to require A.I. to post $5,000 as security for costs pursuant to N.Y. C.P.L.R. § 8501. (Defendant's Memorandum of Law in Reply to Plaintiff's Opposition ("Def. Reply Memo.") at 2-3) Section 8501(a) provides:
As of right. Except where the plaintiff has been granted permission to proceed as a poor person or is the petitioner in a habeas corpus proceeding, upon motion by the defendant without notice, the court or a judge thereof shall order security for costs to be given to the plaintiffs where none of them is a domestic corporation, a foreign corporation licensed to do business in the state, or a resident of the state when the motion is made.Id. If A.I. had brought this action in New York state court, it would be required to post bond under this provision. See Expense Reduction Servs., Inc. v. Jonathan Woodner Co., Inc., 720 F. Supp. 262, 265 (S.D.N.Y. 1989). By contrast, Local Civil Rule 54.2 provides that security for costs rests with the discretion of the court: "The court, on motion or on its own initiative, may order any party to file an original bond for costs or additional security for costs in such an amount and so conditioned as it may designate." Local Civil Rule 54.2 of the U.S. District Courts for the Southern and Eastern Districts of New York. The Second Circuit has held, "In diversity actions, federal courts are not bound to follow state rules on security for costs where a federal local rule granting discretion is applicable, although they may look to state rules for guidance." Atlanta Shipping Corp., Inc. v. Chem. Bank, 818 F.2d 240, 251 (2d Cir. 1987) (internal quotation marks omitted). Therefore, this court is not bound by N.Y. C.P.L.R. § 8501(a) and instead has discretion under Local Rule 54.2 to determine whether A.I. should be required to post security for costs in this action.
When ordering a bond for costs, courts in the Southern and Eastern Districts typically consider: (1) the non-movant's financial condition and ability to pay; (2) whether that party is a non-resident or foreign corporation; (3) the merits of the action; (4) the extent and scope of discovery; (5) the expected legal costs to be incurred; and (6) the non-movant's compliance with prior court orders. See N'Jai v. New York State Higher Educ. Servs. Corp., 214 F.R.D. 251, 251-52 (E.D.N.Y. 2003);Selletti v. Carey, 173 F.R.D. 96, 100-01 (S.D.N.Y. 1997), aff'd 173 F.3d 104 (2d Cir. 1999).
SurgiCare argues that A.I. should be required to post security for costs because plaintiff is a foreign corporation not doing business in New York and because plaintiff may be unable to afford SurgiCare's costs if SurgiCare prevails. (Def.Reply Memo, at 2-3) SurgiCare claims that the bond should be $5,000, the approximate cost SurgiCare will incur for flying its witnesses to New York and housing them for one week. (Sovak Aff. at 2) SurgiCare does not make any claims about the merits of A.I.'s case; the extent and scope of discovery; SurgiCare's own expected legal costs, apart from travel expenses; or A.I.'s compliance with prior court orders.
Although A.I. is a foreign corporation doing business outside the United States, it does maintain a brokerage account in New York that holds securities currently valued at more than $200,000. (Jallad Supp. Decl. ¶ 4) This fact was apparently unknown to SurgiCare at the time it requested an order requiring security for costs, as defendant then cited its lack of information about A.I.'s financial status as a reason for believing that "there exists a high risk that A.I. will be unable to pay SurgiCare's costs should SurgiCare prevail." (Def. Reply Memo, at 3) Because A.I.'s assets in New York far exceed the $5,000 SurgiCare identifies as potential costs, there is no significant danger that SurgiCare will be unable to collect this amount from A.I. if it prevails at trial. Accordingly, SurgiCare's motion to require A.I. to post security for costs is denied. M
For the reasons stated above, SurgiCare's motions are denied.
SO ORDERED.