Opinion
600454/2005.
Decided December 19, 2005.
Motions sequence numbers 001, 002 and 003 are consolidated for disposition. In this commercial contract action, three groups of defendants submit separate motions to dismiss the complaint. For the following reasons, the court denies them all except for the fifth cause of action that it dismisses.
BACKGROUND
Plaintiff Cerberus Capital Management, L.P. (Cerberus) is a Delaware limited partnership that has its principal offices in New York City. Cerberus acquires financially troubled companies, restores them to profitable operating condition and then sells them. ( See Notice of Motion [motion sequence number 001], Trzaskoma Affidavit, Exhibit 1 [complaint], ¶ 8). Defendant Snelling Snelling, Inc. (S S, Inc.) is a Delaware corporation with its principal offices in Dallas, Texas, as well as offices in New York City that operates an employment staffing service. ( Id., ¶ 9). Although it has an extensive network with many branches, during the relevant time period S S, Inc. was a financially troubled company. ( Id., ¶ 4).
Defendant Patriarch Partners, LLC (Partiarch) is a Delaware limited liability company with its principal offices in New York. Just as Cerberus does, Partiarch acquires, services and sells financially troubled companies. ( Id., ¶ 16). On December 7, 2004, Partiarch executed a non-disclosure agreement with S S, Inc. (the Non-Disclosure Agreement). ( See Notice of Motion [motion sequence number 001], Tilton Affidavit, ¶ 4). Under the terms of that agreement, Patriarch agreed to perform its due diligence to evaluate S S, Inc.'s financial condition, anticipating that Patriarch (or its affiliates) would make an offer to purchase S S, Inc. ( Id., ¶ 5). On December 24, 2004, certain Patriarch affiliates made a non-contingent purchase offer for S S, Inc. On January 6, 2005, S S, Inc.'s board of directors rejected that offer. ( Id., ¶¶ 6-7).
On January 9, 2005, Cerberus, S S, Inc. and several of S S, Inc.'s stockholders entered into a letter agreement, in which Cerberus agreed to perform the same type of due diligence as Patriarch, with the expectation that Cerberus would also make an offer to purchase S S, Inc. (the Letter Agreement). ( See Notice of Motion [motion sequence number 001], Trzaskoma Affidavit, Exhibit 1 [complaint], ¶ 21). The S S, Inc. stockholders who signed the Letter Agreement in their individual capacities included defendants Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews. ( Id., ¶ 20; Exhibit 1-A [the Letter Agreement]). Melinda S. Paulk also signed the Letter Agreement a second time as S S, Inc.'s president. ( Id.; Exhibit 1-A). In pertinent part, the Letter Agreement provides that S S, Inc. would negotiate exclusively with Cerberus between January 9 and January 24, 2005. ( Id., ¶ 24; Exhibit 1-A). Paragraph 6, the Letter Agreement's "Non-Circumvention and Exclusivity" clause, specifically states that:
Cerberus actually alleges that these defendants are stockholders of a Texas corporation called Nehemiah, Inc. that, in turn, controls a Texas limited partnership, called Arimathea Associates, Ltd., that owns approximately 47.8 % of S S, Inc.'s outstanding shares. ( See Miller Affidavit in Opposition, ¶ 9; Exhibits 10-13). Cerberus also alleges that defendants Robert O. Snelling, Sr. and Anne Snelling, who co-founded S S, Inc., own the balance of S S, Inc.'s outstanding shares either outright or through trusts that they control. ( Id., ¶ 10; Exhibits 10, 14, 15, 39).
for a period of 15 days commencing on the date hereof, unless this agreement is terminated earlier, each Stockholder agrees that he or she will not (and will not cause or permit his or her agents, representatives or any other person acting on his or her behalf to), and [S S, Inc.] agrees that it will not (and will not cause or permit its directors, officers, agents, representatives, affiliates, stockholders and any other person acting on its behalf to), directly or indirectly, (I) solicit offers, inquiries or proposals for, or entertain any offer, inquiry or proposal to enter into, any transaction that has as a purpose a business combination or merger, an issuance or sale of all or any substantial portion of the equity of [S S, Inc.] and/or its subsidiaries, a sale of all or any substantial portion of the assets of [S S, Inc.] and/or its subsidiaries or a sale of the capital stock of [S S, Inc.] held by such Stockholder (any of the foregoing, a "Competing Transaction"), (ii) provide information to any other person regarding [S S, Inc.] and/or its subsidiaries, or (iii) conduct any discussions or negotiations, or enter into any agreement, arrangement or understanding, regarding a Competing Transaction. [S S, Inc.] and each Stockholder shall immediately cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to any Competing Transaction. During the term of this agreement, [S S, Inc.] or a Stockholder, as applicable and to the extent allowable, will promptly notify Cerberus if it receives any such offer, inquiry or proposal and the details thereof, and keep Cerberus informed with respect to each such offer, inquiry or proposal. [S S, Inc.] or a Stockholder, as applicable will provide Cerberus with copies of all such offers, inquiries or proposals which are in writing.
( Id.; Exhibit 1-A). Other pertinent clauses of the Letter Agreement are:
8. Confidentiality. Each of the parties agrees to keep confidential and not to disclose this Letter, the terms and conditions contained in this Letter, the Transaction, or the fact that discussions are ongoing (except to its attorneys, accountants, advisors, employees, officers, directors, stockholders, potential financing sources and consultants . . .) unless the parties mutually agree upon such disclosure.
9. Legal Effect. Other than the obligation to negotiate in good faith contained in Paragraph 3 and other than Paragraphs 6 through 14, which are intended to be binding agreements of the parties, this Letter is intended to serve only as an expression of the parties' intent. . . .
10. Governing Law. This Letter will be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to the conflict of laws principles thereof).
( Id.; Exhibit 1-A). S S, Inc. and Cerberus subsequently agreed twice, in writing, to extend the termination date of the Letter Agreement's exclusive negotiation period, first through January 26, and then through January 31, 2005. ( Id., ¶ 25; Exhibits 1-B, 1-C). S S, Inc. and Cerberus failed to execute a purchase agreement by January 31, 2005. ( Id., ¶ 40). Cerberus alleges that the parties were close to concluding an agreement and that it requested an additional one-day extension of the exclusive negotiation period in order to do so (i.e., until the end of February 1, 2005), but that S S, Inc. denied that request. ( Id., ¶ 3). Instead, on February 1, 2005, S S, Inc. accepted a purchase offer from Patriarch. ( Id., ¶ 44). Cerberus finally alleges that it spent $700,000.00 in fees and $300,000.00 in expenses while conducting its due diligence review of S S Inc.'s financial condition. ( Id., ¶ 1; Miller Affidavit in Opposition, ¶ 30).
Cerberus alleges that S S, Inc. hired non-party XRoads Solutions Group, LLC (XRoads) as its financial advisor on December 13, 2004, during the time that Patriarch was still conducting its due diligence of S S, Inc. ( Id., ¶ 19). Cerberus also alleges that non-party Keith Maib (Maib), who was then the practice group leader of XRoads' East Coast Restructuring Practice, later handled all negotiations with Cerberus on S S, Inc.'s behalf. ( Id., ¶ 34; Miller Affidavit in Opposition, ¶ 13). The text of the retainer agreement between S S Inc. and XRoads (the Retainer Agreement) confirms this. ( See Rice Reply Affirmation, Exhibit A). XRoads maintained an office in New York City. Cerberus asserts that Maib conducted business from that office. ( See Miller Affidavit in Opposition, ¶ 11). Currently, Partiarch employs Maib. Maib is also the defendant in a separate action that his former employer commenced against him for breach of his contractual and fiduciary duties to protect its proprietary information and trade secrets. ( Id.; Exhibit 16).
Cerberus states that, on January 28, 2005, Joseph Nacaratto (Nacaratto), one of Cerberus' vice presidents, called Maib to discuss Cerberus' forthcoming offer to purchase S S, Inc. ( See Notice of Motion [motion sequence number 001], Trzaskoma Affidavit, Exhibit 1 [complaint], ¶ 34). Cerberus further states that Maib informed Nacaratto that Cerberus had better attempt to reach a final agreement with S S, Inc. quickly, because "there [were] others out there" who were also interested in doing so. ( Id.). In response to Nacaratto's question as to whether S S, Inc. had actually received any other offers, Maib allegedly replied that there were "no written offers." ( Id.). As previously mentioned, Nacaratto later contacted Maib again to request an additional one-day extension of the exclusive negotiation period between Cerberus and S S, Inc. until the end of February 1, 2005. ( Id., ¶ 3). S S, Inc. denied that request and accepted Patriarch's purchase offer on February 1, 2005 instead. ( Id., ¶ 44).
Now, after limited discovery, Cerberus alleges that S S, Inc. wrongfully forwarded to Patriarch a confidential draft of a proposed asset purchase agreement that Cerberus had sent to S S, Inc. during the exclusive negotiation period between the two companies. ( See Miller Affidavit in Opposition, ¶ 57; Exhibit 5). Cerberus also alleges that Patriarch used that copy of Cerberus's proposed asset purchase agreement as the template for Patriarch's own purchase agreement with S S, Inc. ( Id., ¶ 58). Cerberus has presented a copy of Patriarch's asset purchase agreement, that is, indeed, quite similar to Cerberus' proposed asset purchase agreement. ( Id.; Exhibits 29, 36).
Cerberus commenced this action on February 4, 2005. None of the defendants has yet answered. Instead, three groups of defendants now move to dismiss the complaint, pursuant to various provisions of CPLR 3211. Partiarch and Lynn Tilton, Patriarch's "principal and founder" (the Patriarch defendants) make the first dismissal motion (motion sequence number 001). Defendants S S, Inc., Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews (collectively, the S S defendants) make the second dismissal motion (motion sequence number 002). Defendants Robert O. Snelling, Sr. and Anne Snelling (the Snelling defendants) make the third dismissal motion (motion sequence number 003). The complaint asserts causes of action for: 1) breach of contract (against the S S defendants); 2) breach of the express and implied duty to negotiate in good faith (against the S S defendants); 3) tortious inducement to breach of contract (against the Snelling defendants); 4) tortious inducement to breach of contract (against the Patriarch defendants) and 5) tortious interference with prospective business relations (against the Patriarch defendants). ( See Notice of Motion (motion sequence number 001), Trzaskoma Affidavit, Exhibit 1 [complaint]).
The complaint states that "the John Doe' defendants are unknown principals, agents, representatives, affiliates or employees" of any or all of the other defendants in this action. ( See Notice of Motion [motion sequence number 001], Trzaskoma Affidavit, Exhibit 1 [complaint], ¶ 18). None of the parties who have submitted these motions request any relief on behalf of these "John Doe" defendants.
DISCUSSION
When evaluating a defendant's motion to dismiss pursuant to CPLR 3211 (a), the test "is not whether the plaintiff has artfully drafted the complaint but whether, deeming the complaint to allege whatever can be reasonably implied from its statements, a cause of action can be sustained." ( Jones Lang Wootton USA v. LeBoeuf, Lamb, Greene MacRae, 243 AD2d 168, 176 [1st Dept 1998]). To this end, the court must accept all the allegations in the complaint as true and determine whether they fit within any "cognizable legal theory." ( See e.g. Arnav Indus., Inc. Retirement Trust v. Brown, Raysman, Millstein, Felder Steiner, L.L.P., 96 NY2d 300, 303).
The Patriarch Defendants' Motion
The Patriarch defendants seek dismissal of Cerberus's fourth and fifth causes of action, alleging tortious interference with contract and tortious interference with prospective business relations. The Patriarch defendants correctly note that, to plead a legally sufficient claim for tortious interference with contract, the proponent must allege "the existence of a valid contract, the tortfeasor's knowledge of the contract and intentional interference with it, the resulting breach and damages." ( Hoag v. Chancellor, Inc., 246 AD2d 224, 228 [1st Dept 1998]). The Patriarch defendants argue that the complaint does not adequately allege any of these four elements. ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 7-11).
Where documentary evidence directly contradicts a plaintiff's claims, the court can dismiss the case. ( Scott v. Bell Atlantic Corp., 282 AD2d 180, 183 [1st Dept 2001] affd as mod Goshen v. Mutual Life Insurance Co. of New York, 98 NY2d 314, citing Ullmann v. Norma Kamali, Inc., 207 AD2d 691, 692 [1st Dept 1994]). Here, the Partiarch defendants first argue that Cerberus has failed to allege the "existence of a valid contract" because the Letter Agreement's terms provide for either party's at-will termination. ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 9-10). The Patriarch defendants conclude that the Letter Agreement is therefore "a prospective contractual relation only" that cannot support a tortious interference claim. ( Id.). Cerberus counters that the Letter Agreement does not provide for at-will termination by either party. ( See Memorandum of Law in Opposition to Motion [motion sequence number 001], at 8-10). The termination provision of the Letter Agreement states as follows:
11. Termination. This Letter, except for paragraphs 6 through 14, will terminate upon the earliest to occur of (I) the execution and delivery of the Purchase Agreement, (ii) the failure of the parties to execute and deliver the Purchase Agreement on or before the date that is 15 days after the date hereof, and (iii) written notification from Cerberus to (S S, Inc.) that it no longer wishes to proceed with the Transaction.
Nothing in this text grants S S, Inc. the right to terminate the Letter Agreement at will. Further, this text clearly states that paragraph 6, containing the Letter Agreement's "Non-Circumvention and Exclusivity" clause (see discussion pg. 3, supra), is not subject to these termination provisions. The Patriarch defendants nonetheless argue that S S, Inc. "could terminate the agreement by, among other things, refusing to accept a purchase agreement." However, because doing so would clearly violate paragraph 6, the court rejects that argument. In any event, the Appellate Division, First Department, has noted that where one party's construction of a termination provision is no less reasonable than the other party's, then it is appropriate for the trial court that reviews a dismissal motion to deem such a provision as ambiguous, and it is inappropriate for that court to grant dismissal. ( See Zuckerwise v. Sorceron Inc., 289 AD2d 114, 114-115 [1st Dept 2001]). Further, "a commitment letter can constitute a binding contract." ( KSL Recreation Corp. v. Boca Raton Hotel and Club Ltd. Partnership, 168 Misc 2d 18, 23 [Sup Ct, NY County 1995]; see also SNC, Ltd. v. Kamine Engineering and Mechanical Contracting Co., Inc., 238 AD2d 146 [1st Dept 1997] [recognizing that issues of fact existed "as to whether (the) plaintiff and the Owner defendants (had) reached a binding preliminary contract giving rise to a duty to negotiate in good faith"]). Accordingly, without making any ancillary factual determinations, the court holds that Cerberus has adequately pled the existence of a valid contract in connection with its fourth cause of action.
The Patriarch defendants next argue that the complaint "fails to allege facts sufficient to show that Patriarch was aware of the Letter Agreement." ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 7-9). However, the complaint describes negotiations that took place between Snelling and Patriarch during the exclusivity period, including conversations between Naccarato and Maib, to support the inference that the Patriarch defendants were aware of the Letter Agreement's existence, yet still made an unwritten offer to purchase S S, Inc. during the exclusive negotiation period. ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 16-21). E-mails attached as Exhibit 3 to the affidavit of Eric Miller, the Managing Director of Cerberus, show communications during the exclusivity period between Maib and Partiarch. In their reply papers, the Patriarch defendants argue that "Maib's knowledge cannot be imputed to Patriarch"; however they do not explain why. Indeed, it has recently come to light that Maib himself went to work at Patriarch shortly after the events that gave rise to this action transpired. Accordingly, the court finds that Cerberus has adequately pled knowledge of the contract for the purposes of this motion.
In order to allege tortious interference with contract, plaintiff also must assert that but for the intentional interference there would be no breach. ( Hoag v. Chancellor, Inc., 246 AD2d at 228; see e.g. Lana Samer, Inc. v. Goldfine, 7 AD3d 300 [1st Dept 2004]). The Patriarch defendants argue that factual contradictions in the complaint make a "but for" showing impossible. First, they claim that the allegation that S S, Inc. agreed to extend its exclusive negotiation period with Cerberus, contradicts the allegation that S S, Inc. intentionally stalled its negotiations with Cerberus in order to make a deal with Patriarch. ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 10-11). However, reading the complaint in the light most favorable to Cerberus, it is reasonable to assume that S S, Inc. and Patriarch were reviewing the terms of Cerberus's proposed purchase offer during the exclusivity period and that S S, Inc. agreed to extend that exclusivity period in order to facilitate the adjustment and finalization of Patriarch's own purchase offer. Thus, the first "contradiction" does not obviate the existence of a "but for" connection between Patriarch's interference and S S, Inc.'s breach.
The Patriarch defendants also argue that Cerberus contradicted itself in simultaneously claiming that S S, Inc. breached the portion of the Letter Agreement's "Non-Circumvention and Exclusivity" provision that required it to notify Cerberus of any competing offers, but also admitting that Maib did notify it of a competing offer. ( Id). However, this "contradiction" relates to whether or not S S, Inc. technically breached the Letter Agreement. Nonetheless, reading the complaint in the light most favorable to Cerberus, one could reasonably conclude that Maib's "notification" did not comply with the other applicable provisions of the Letter Agreement. In the first place, the complaint alleges that Naccarato called Maib instead of Maib calling Naccarato. In the second place, the Letter Agreement also required S S, Inc. to notify Cerberus not only of the existence of any competing offers, but also of their terms, status and the identity of the offering party. The complaint alleges that Maib failed to provide that information. Thus, the second "contradiction" does not obviate the existence of a "but for" connection between Patriarch's interference and S S, Inc.'s breach. Accordingly, the court rejects the Patriarch defendants' second argument and finds that the complaint's allegation that S S, Inc. breached the Letter Agreement as a direct result of the Partiarch defendants' intentional interference is sufficient for the purposes of this motion.
Damages is the final element that the proponent of a tortious interference with contract claim must plead. The Partiarch defendants argue that Cerberus's damages allegation is insufficient because "the only breach of a contractual right that Cerberus alleges . . . was the right to exclusively negotiate with [S S, Inc.] for 22 days," and because Cerberus does not "allege the actual value of this exclusivity provision." ( See Memorandum of Law in Support of Motion [motion sequence number 001], at 10-11). In response, Cerberus first correctly points out that the proponent of a tortious interference claim may allege as damages "the loss suffered by the plaintiff, including the opportunities for profits on business diverted from it.'" ( Mandelblatt v. Devon Stores, Inc., 132 AD2d 162, 168 [1st Dept 1987], quoting Sommer v. Kaufman, 59 AD2d 843, 844 [1st Dept 1977]). Cerberus then also correctly points out that at least one Appellate Division has held that "loss suffered" may include a plaintiff's out-of-pocket expenses and fees. ( See John R. Loftus, Inc. v. White, 150 AD2d 857 [3rd Dept 1989]). Here, the complaint alleges that Cerberus expended $700,000.00 in fees and $300,000.00 in expenses while conducting its due diligence review of S S, Inc.'s financial condition. ( See Notice of Motion [motion sequence number 001], Trzaskoma Affidavit, Exhibit 1 [complaint], ¶ 1; Miller Affidavit in Opposition, ¶ 30). Because these allegations specify certain types of money damages that the proponent of a tortious interference claim may legally recover, they are legally sufficient for the purpose of this motion. Accordingly, the court denies that part of the Patriarch defendants' motion seeking dismissal of that plaintiff's fourth cause of action.
Cerberus's fifth cause of action alleges tortious interference with prospective business relations. The gravamen of this tort is that defendant "intentionally and through wrongful acts prevented a third party from extending a contractual relationship to the plaintiff.'" ( Joan Hansen Co., Inc. v. Everlast World's Boxing Headquarters Corp., 296 AD2d 103, 111 [1st Dept 2002] [citation omitted] [ see also, American Preferred Prescription, Inc. v. Health Management, Inc., 252 AD 414, 417 [1st Dept 1998] [plaintiff must assert that "defendants acted solely out of malice or employed wrongful means'"]).
The Patriarch defendants first argue that the complaint does not allege sufficiently that S S, Inc. "would have extended the terms of the Letter Agreement but for Patriarch's wrongful acts." (Memorandum of Law in Support of Motion [motion sequence number 001], at 13). The preamble to the Letter Agreement states that:
Cerberus . . . is engaged in discussion with [S S, Inc.] . . . regarding the proposed acquisition by an entity to be formed by Cerberus ("Newco") of substantially all of the assets and assumption of all of the liabilities . . . of [S S, Inc.] . . . (the" Transaction"). The purpose of this letter (this "Letter") is to set forth our understanding regarding the contemplated Transaction. Obviously, this Letter is not intended to contain all matters upon which agreement must be reached in order to consummate the Transaction.
( See Notice of Motion [motion sequence number 001]), Trzaskoma Affidavit, Exhibit 1-A). The plain text of the Letter Agreement, that the complaint references, supports Cerberus's assertions that it and S S, Inc. had contemplated entering into an ongoing business relationship. Therefore, it is reasonable to infer that, but for Patriarch's actions, the former two companies would have entered into an ongoing relationship. Accordingly, Cerberus has adequately pled the first element of its cause of action for tortious interference with prospective business relations.
Although it is permissible for a party to act in its own economic self-interest, it may not use wrongful means to do so. ( Carvel Corporation v. Noonan, 3 NY3d 182, 190).
The Patriarch defendants next argue that the complaint only contains speculative allegations regarding "wrongful means." "Wrongful means' includes physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degree of economic pressure." ( Id. citing Guard Life Corp v. S Parker Hardware Mfg. Corp., 50 NY2d 183). "As a general rule, the defendant's conduct must amount to a crime or an independent tort" to meet the definition of "more culpable." ( Id.).
Here, the complaint alleges that the Patriarch defendants acted by means that were "dishonest, unfair and improper" by "soliciting or disclosing information protected by the Confidential Clause" (Complaint ¶ 76). However, given that the Patriarch defendants were not parties to that confidentiality agreement, the complaint contains nothing indicating the Patriarch defendants acted beyond mere self-interest or other economic considerations. This is insufficient to support a claim for tortious interference with prospective business relations. ( See Shared Communications Services of ESR, Inc. v. Goldman Sachs Co., ___ NYS2d ___, 2005 WL 2850292 [1st Dept November 1, 2005]).
Plaintiff also points to certain "obstacles" to the Cerberus transaction to support this claim including: 1) a last-minute request that defendants Robert O. Snelling Sr. and Anne Snelling receive a $3.2 million cash payment in lieu of the $25,000.00 monthly annuity that the Letter Agreement contemplated; 2) a last-minute request that defendant Robert O. Snelling Jr. receive a permanent, unlimited and un-terminatable employment contract with the company to form after Cerberus purchased S S, Inc., that would provide for a salary, health coverage and other benefits, but would not require his presence at the office and 3) Maib's refusal to take phone calls or to provide information during the latter half of the day on January 31, 2005. However, nothing in the complaint or otherwise indicated that the Patriarch defendants were involved in putting up these obstacles. Rather, it would appear that the Snelling defendants, the S S defendants and Maib created these "obstacles." Accordingly, plaintiff has failed to plead "wrongful means" and therefore the court dismisses plaintiffs' claim for tortious interference with prospective business relations.
The S S Defendants' Motion
In the second motion before the court, the S S defendants seek dismissal of Cerberus's first and second causes of action, that respectively allege breach of contract and "breach of the express and implied duty to negotiate in good faith." The first portion of their memorandum argues that the court lacks personal jurisdiction over them, while the second portion of their memorandum argues that the complaint's pleadings are inadequate.
However, before they reach the substance of their jurisdictional arguments, both parties argue the burden of proof issue. The S S defendants state that "Cerberus must make a prima facie showing that jurisdiction exists over the Snelling Directors under CPLR 302 (a)." ( See Memorandum of Law in Support of Motion [motion sequence number 002], at 8). Cerberus responds that it need not make a "prima facie showing" at this point because it has not yet had an opportunity to conduct jurisdictional discovery, and that, instead, it "only need to allege facts indicating that it has made a sufficient start' to warrant further [i.e., jurisdictional] discovery." ( See Memorandum of Law in Opposition to Motion, at 9).
Cerberus is partly correct. The Court of Appeals has held that a plaintiff who must defend a dismissal motion before having the opportunity to conduct substantial discovery on the issue of jurisdiction need only make a "sufficient start" on that issue, by showing that facts "may exist" that indicate that a defendant is subject to the court's jurisdiction. ( Peterson v. Spartan Industries, Inc., 33 NY2d 463, 467; see also Edelman v. Taittinger, S.A., 298 AD2d 301 [1st Dept 2002] [plaintiff who alleged that a defendant was doing business in New York through its direct or indirect subsidiaries had made a "sufficient start" on an agency argument to justify disclosure on the issue of jurisdiction]). However, the proper remedy for a plaintiff who makes a "sufficient start" is normally for the court to fashion an order, pursuant to CPLR 3211 (d), that grants the plaintiff the opportunity to take further discovery on the jurisdictional issue. ( Peterson v. Spartan Industries, Inc., 33 NY2d at 467; see also Edelman v. Taittinger, S.A., 298 AD2d at 302, 303; Southern Industries of Clover, Ltd. v. Tex-Cellence, Inc., 7 Misc 3d 1007[A], 2 [Sup Ct, Bx County 2005], citing EAC Systems, Inc. v. Chevie, 154 AD2d 813 [3rd Dept 1989]).
Here, Cerberus does not request that relief in its opposition papers. Instead, those papers assert that "not only has Cerberus made a sufficient start,' it has demonstrated conclusively that this Court has jurisdiction over the [S S, Inc.] Stockholders," and requests that these defendants' motion be denied. ( See Memorandum of Law in Opposition to Motion, at 10). Cerberus must support the court's exercise of personal jurisdiction over the S S defendants by a preponderance of the evidence. ( See e.g. Stewart v. Volkswagen of America, Inc., 81 NY2d 203; 72A Realty Associates v. New York City Environmental Control Bd., 275 AD2d 284 [1st Dept 2000]). For the following reasons, Cerberus has done so.
I. Jurisdictional Arguments
Cerberus claims that the S S defendants are subject to the court's jurisdiction pursuant to both CPLR 302 (a) (1) and CPLR 302 (a) (4). ( See Memorandum of Law in Opposition to Motion, at 8-16). The former statute grants the court personal jurisdiction "over any non-domiciliary . . . who in person or through an agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state." (CPLR 302 [a] [1]). A party that asserts jurisdiction pursuant to this statute must show that a non-domiciliary defendant "transacted business" in New York (within the statute's meaning) and that there is an articulable nexus between that transaction and the plaintiff's cause of action against the defendant. ( See Peter Lisec Glastechnische Industrie GmbH v. Lenhardt Maschinenbau GmbH, 173 AD2d 70, 72-73 [1st Dept 1991], citing McGowan v. Smith, 52 NY2d 268, 272).
The S S defendants initially claim that they did not "transact any business" in New York. ( See Memorandum of Law in Support of Motion [motion sequence number 002], at 8-10). Cerberus argues that the S S defendants did "transact business" in New York through their agents, i.e., XRoads and Maib. The S S defendants reply that XRoads was merely S S, Inc.'s investment bank, not its agent for jurisdictional purposes. The S S defendants also argue that, even if XRoads (and Maib) had an agency relationship with S S, Inc., they had no individual agency relationships with S S, Inc. shareholders Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews (the S S shareholders). ( Id.). The court finds that neither of the S S defendants' reply arguments is defensible.
With respect to the first, the S S defendants quote the portion of the Retainer Agreement that provides that "XRoads will be engaged as [S S, Inc.'s] financial advisor." They also correctly note that, in PaineWebber Inc. v. Westgate Group, Inc. ( 748 F Supp 115 [SD NY 1990]), the United States District Court for the Southern District of New York dismissed the claims of a Texas corporation against its New York investment bank for lack of jurisdiction, in part, because the court found that the financial advice that the bank had provided to the plaintiff in connection with a failed merger did not amount to a "transaction of business" in New York. ( Id. at 120-122). However, the S S defendants are incorrect to suggest that the PaineWebber Inc. holding embodies an absolute rule that investment banks that provide financial advice are not "transacting business" within the meaning of CPLR 302 (a) (1). Rather, the District Court in PaineWebber Inc. held that there was no "transaction," because the plaintiff had not "purposefully availed" itself of New York as a forum in which to conduct business. (Id. at 121). PaineWebber Inc. is factually inapposite for two reasons. First, the Retainer Agreement does not merely provide for XRoads to render financial advisory services, as did the agreement at issue in PaineWebber Inc. Instead, the Retainer Agreement also provides for XRoads to earn additional fees if it proposed or designed a "Restructuring," that the Retainer Agreement defines as a merger or an acquisition of S S, Inc. ( See Rice Reply Affirmation, Exhibit A, at 2). The Retainer Agreement defines XRoads' possible proposal or negotiation of a "Restructuring" as a task separate from XRoads' obligations as a financial advisor and one for which XRoads would receive separate payment. As the United States Court of Appeals for the Second Circuit recently observed in Padilla v. Rumsfeld ( 352 F 3d 695 [2d Cir 2003], revd on other grounds sub nom. Rumsfeld v. Padilla, 542 US 426), CPLR 302 (a) (1) broadly defines the concept of a "transaction of business" to include many forms of both commercial and non-commercial activity. When analyzed against the background of CPLR 302 (a) (1), the "task" described above clearly embodies a form of commercial activity that is well within the statute's broad definition of "business transaction." Thus, the underlying activity at issue here (i.e., negotiating a "Restructuring") is qualitatively different from the activity that the District Court reviewed in PaineWebber Inc. (i.e., providing financial advice).
The federal court also found that the plaintiff's causes of action did not arise out of the same subject matter as the business that had allegedly been transacted. 748 F Supp at 121.
The second reason to distinguish PaineWebber Inc. concerns the issue of "purposeful availment" of New York as a forum in which to conduct business. The District Court found that there was none in that case, because the plaintiff "did not hire a New York bank because it sought to do business in New York." Here, the Retainer Agreement specifically names Maib, the New York City-based leader of XRoads' East Coast Restructuring Practice, as XRoads' "Principal-In-Charge" of contractual services for the S S defendants. Thus, unlike the plaintiff in PaineWebber Inc., the S S defendants clearly contracted to use XRoads' New York office in order to seek, among other things, corporate restructuring opportunities here. Therefore, the facts upon which the District Court based its holding in PaineWebber Inc. are substantially different from the ones at bar.
Of more precedential value is the United States District Court for the Southern District of New York's decision in On Line Marketing Inc. v. Thompson Outfitters, Inc. ( 2000 WL 426426 [SD NY April 20, 2000]), that followed PaineWebber Inc. In On Line Marketing Inc., the District Court acknowledged that "[t]elephone calls or mailings, . . . can confer personal jurisdiction only if the defendant conducted these activities to actively participate in business dealings in New York, . . . and in order to purposely avail' themselves of the benefits of doing business in New York." ( Id. [internal citations omitted]).
The Appellate Division, First Department, agrees with the federal District Court's analysis of CPLR 302 (a) (1) in On Line Marketing Inc. v. Thompson Outfitters, Inc. See e.g. Courtroom Television Network v. Focus Media, Inc., 264 AD2d 351 (1st Dept 1999) ("transaction of business" over the telephone can be sufficient for the purposes of the statute).
Here, Cerberus alleges that all of the S S defendants participated in telephone calls, e-mails and document exchanges with Maib during his negotiations with Cerberus and also engaged in the same activity to support Maib's shadow negotiations with Patriarch at the same time. ( See Miller Affidavit in Opposition, ¶¶ 31, 57-63). As previously discussed, the Retainer Agreement specifically provides for Maib to handle all negotiations with Cerberus on behalf of S S, Inc. ( See Miller Affidavit in Opposition, ¶ 34; Rice Reply Affirmation, Exhibit A). Also, the complaint states XRoads' East Coast Restructuring Practice employed Maib as its practice group leader and that Maib operated from XRoads' New York City offices during the relevant time period. ( See Miller Affidavit in Opposition, Exhibit 16). These factual allegations give rise to an inference that the S S defendants directed their telephone calls, e-mails and document exchanges to Maib in New York in order to assist him in negotiating on their behalf. If they did so, then it would be reasonable to deem the S S defendants' activity as an attempt "to actively participate in business dealings in New York." ( On Line Marketing Inc. v. Thompson Outfitters, Inc., 2000 WL 426426 at *3 [SD NY April 20, 2000]). It would also be reasonable to conclude that the S S defendants assisted Maib "in order to purposely avail themselves of the benefits of doing business in New York," i.e., by using Maib's company, XRoads, to seek out and finalize a badly needed merger or asset purchase offer. ( Id.). Pursuant to the holding of On Line Marketing Inc. v. Thompson Outfitters, Inc., those two conclusions justify the finding that the S S defendants "transacted business" in New York within the meaning of CPLR 302 (a) (1). Accordingly, the court adopts this conclusion and rejects the S S defendants' first reply argument.
The S S defendants' second reply argument is that CPLR 302 (a) (1) does not confer personal jurisdiction over the S S shareholders because, even if Maib and XRoads were agents of S S, Inc., they were not the agents for Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews. ( See Reply Memorandum of Law, at 4-6) The S S defendants make this argument because the named individuals signed the Retainer Agreement with XRoads only on behalf of S S, Inc. and not in their individual capacities. ( Id.). However, as Cerberus correctly notes, the Court of Appeals holds that
plaintiff need not establish a formal agency relationship between [a] defendant and a [third-party acting on the defendant's behalf; rather, a plaintiff] need only convince the court that [the third-party] engaged in purposeful activities in this State in relation to his transaction for the benefit of and with the knowledge and consent of the . . . defendants and that they exercised some control over [the third party] in the matter.
( Kreutter v. McFadden Oil Corp., 71 NY2d 460, 467). The court has already reviewed Cerberus's evidence and determined that it sufficiently supports the allegation that Maib and XRoads engaged in purposeful activity in New York on behalf of the S S defendants. That same evidence also reveals that the S S defendants' attempt to distinguish between S S, Inc. and the individual S S shareholders on an agency basis is unavailing. The e-mails that Cerberus has presented did not pass between Maib and unnamed corporate officers of S S, Inc., but between Maib and the individual S S shareholders (i.e., Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews). ( See Miller Affidavit in Opposition, Exhibit 19). In those emails, Maib relates the progress of his negotiations with Cerberus about individual compensation packages to each of the shareholders and often uses language such as "I await your instructions." ( Id). When read in the light most favorable to Cerberus, it would be reasonable to conclude: 1) that Maib conducted shadow negotiations with Patriarch in New York "for the benefit of and with the knowledge and consent of" the S S shareholders during the exclusive negotiation period that Cerberus had contracted for; and 2) that the S S shareholders had "some control over [Maib] in the matter." ( Kreutter v. McFadden Oil Corp., 71 NY2d at 467). The S S shareholders collectively owned and controlled the two entities that own approximately 47.8 % of S S, Inc.'s outstanding shares thereby exercising more than a little control over S S, Inc. ( See Miller Affidavit in Opposition, ¶ 9; Exhibits 10-13). Under the foregoing analysis, XRoads and Maib were agents-in-fact for the individual S S shareholders. Thus, there is no need for further proof of a formal agency arrangement between XRoads and the individual S S shareholders. Accordingly, the court rejects the S S defendants' second reply argument.
As previously mentioned, the other element that a plaintiff asserting jurisdiction pursuant to CPLR 302 (a) (1) must allege is the existence of an articulable nexus between the subject business transaction and the causes of action sued upon. ( Peter Lisec Glastechnische Industrie GmbH v. Lenhardt Maschinenbau GmbH, 173 AD2d at 72-73, citing McGowan v. Smith, 52 NY2d at 272). Here, the S S defendants argue that neither of Cerberus's causes of action against them arose out of XRoads' and Maib's activities in New York. They specifically contend:
Here, given that the Snelling Directors, individually, did not retain XRoads to provide financial advice concerning the sale of [S S, Inc.], Cerberus can make no showing that XRoads' activities in the State of New York, whether related to the negotiation of the [Letter Agreement] or otherwise, are sufficiently "purposeful" to bind the Snelling Directors for jurisdictional purposes.
(Reply Mem. at 8). However, in the preceding portion of this decision, the court rejected the S S defendants' contention that XRoads and Maib only acted as financial advisors pursuant to the terms of the Retainer Agreement. Instead, the court held that, for the purposes of this motion, Cerberus had adequately pled that XRoads and Maib were the agents-in-fact for all of the S S defendants. Central to those pleadings is Cerberus' allegation that Maib conducted shadow negotiations with Partiarch from XRoads' New York City office during the exclusive negotiation period at the behest of, and under the control of, the S S shareholders. Therefore, the court finds that there is an articulable nexus between the New York based activity that Cerberus charges the S S shareholders with and Cerberus' claims for both breach of contract and breach of the express and implied duty to negotiate in good faith. Accordingly, the court also rejects the S S defendants' final reply argument and holds that Cerberus' allegations satisfy the jurisdictional pleading requirements of CPLR 302 (a) (1).
Cerberus also argues that CPLR 302 (a) (4) provides an alternate basis for jurisdiction over the S S defendants because the Letter Agreement stated that Cerberus intended to purchase certain real property that the S S defendants owned in New York. ( See Memorandum of Law in Opposition to Motion, at 13-16). That statute allows the court to exercise personal jurisdiction "over any non-domiciliary . . . who in person or through an agent . . . owns, uses or possesses any real property situated within the state." (CPLR 302 [a] [4]).
In order to assert jurisdiction under CPLR 302(a)(4), a plaintiff must demonstrate a relationship between the defendants' real property and the plaintiff's causes of action. ( See e.g. Lancaster v. Colonial Motor Freight Line, Inc., 177 AD2d 152, 159 [1st Dept 1992], citing Aluminal Industries, Inc. v. Newtown Commercial Associates, 89 FRD 326 [SD NY 1980]). The Letter Agreement in this action contemplates that the parties will enter into another contract, in the future, that will provide for the sale of the S S defendants' New York real property. Unless the parties have actually entered into a transaction that involves New York real property, that a defendant merely owns real property in New York is not sufficient to support the court's exercise of jurisdiction under CPLR 302 (a) (4). Accordingly, the court rejects Cerberus's argument that that statute may serve as a basis for personal jurisdiction over the S S defendants in this action.
After determining that a plaintiff has satisfied any New York statutory requirements, the court must also examine federal due process issues and decide whether a defendant has "certain minimum contacts with [the forum State] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice'." ( LaMarca v. Pak-Mor Mfg. Co., 95 NY2d 210, 216, quoting International Shoe Co. v. State of Wash., Office of Unemployment Compensation and Placement, 326 US 310, 316). "Minimum contacts" exist where "a defendant's conduct and connection with the forum State' are such that it should reasonably anticipate being haled into court there'." ( LaMarca v. Pak-Mor Mfg. Co., 95 NY2d at 216, quoting World-Wide Volkswagen Corp. v. Woodson, 444 US 286, 297). Neither Cerberus nor the S S defendants address this issue in their respective memoranda. However, speaking about "minimum contacts" in the context of an alleged breach of contract, the Appellate Division, First Department, recently observed:
While electronic communications, telephone calls or letters, in and of themselves, are generally not enough to establish jurisdiction, they may be sufficient if used by the defendant deliberately to project itself into business transactions occurring within New York State.
Deutsche Bank Securities, Inc. v. Montana Bd. of Investments, 21 AD3d 90, 94 (1st Dept 2005) (internal citations omitted). Earlier in this decision, the court found that Cerberus had sufficiently alleged that the S S defendants used such "electronic communications, telephone calls or letters" to project themselves into business transactions in New York. Accordingly, the court also finds that the S S defendants possess sufficient minimum contacts with New York to satisfy the first prong of federal due process jurisdictional analysis.
The second prong of federal due process jurisdictional analysis is to determine whether "[t]he prospect of defending a suit in the forum State . . . comport[s] with traditional notions of fair play and substantial justice'." ( LaMarca v. Pak-Mor Mfg. Co., 95 NY2d at 217, quoting Burger King Corp. v. Rudzewicz, 471 US, 462, 476). In Asahi Metal Indus. Co., Ltd. v. Superior Ct. of Cal., Solano County, 480 US 102), the Supreme Court stated:
A court must consider the burden on the defendant, the interests of the forum State, and the plaintiff's interest in obtaining relief. It must also weigh in its determination the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interest of the several States in furthering fundamental substantive social policies.'
( 480 US at 113 [citation omitted]). Again, neither Cerberus nor the S S defendants addressed this issue in their respective memoranda. However, as I will discuss further in the portion of this decision that reviews the S S defendants' forum non conveniens argument, the court determines that all of these factors weigh in Cerberus's favor. Therefore, the court holds that Cerberus's maintenance of this action in New York against the S S defendants does not offend traditional notions of fair play and substantial justice. Because Cerberus has fulfilled the statutory requirements of CPLR 302 (a) (1), the court concludes that it may properly exercise personal jurisdiction over all of the S S defendants in this action.
The S S defendants nonetheless claim that, even if they are subject to the court's jurisdiction, the court should decline to exercise jurisdiction under the doctrine of forum non conveniens. The Court of Appeals has held that "[t]he burden rests upon the defendant challenging the forum to demonstrate relevant private or public interest factors which militate against accepting the litigation." ( Islamic Republic of Iran v. Pahlavi, 62 NY2d 474, 479), cert denied 469 US 1108 see also Varkonyi v. S.A. Empresa De Viacao Airea Rio Grandense (Varig), 22 NY2d 333). Among the factors that the court must consider when reviewing a forum non conveniens argument are: "the burden on the New York courts, the potential hardship to the defendant and the unavailability of an alternative forum in which plaintiff may bring suit." ( Id. at 479). No one factor is controlling; the rule rests upon justice, fairness and convenience. ( See e.g. Park Avenue Bank, N.A. v. Iktisat Bankasi Turk A.S., 302 AD2d 1019 [1st Dept 2003]). The S S defendants initially argue that: 1) "none of the causes of action . . . arises out of any business activities conducted by the parties in New York"; 2) "eight of the ten defendants in this case are not domiciled in New York"; and 3) "few of the witnesses are in New York." ( See Memorandum of Law in Support of Motion [motion sequence number 002], at 10).
A court must resolve the jurisdictional issue before a court may consider forum non conveniens. ( See e.g., Ehrlich-Bober Co., Inc. v. University of Houston, 49 NY2d 574 [1980]; Wagner v. Braunsberg, 5 AD2d 564 [1st Dept 1958]).
Cerberus responds that: 1) Cerberus's principal place of business is in New York, it conducted negotiations in New York, and it executed the Letter Agreement in New York; 2) XRoads has offices in New York, and Maib worked from those offices; 3) many of S S, Inc.'s assets that Patriarch acquired and that Cerberus claims that it was supposed to acquire, are located in New York; 4) all of Cerberus's witnesses and documents are located in New York; and 5) Patriarch's principal place of business is in New York (and Maib currently works there).
In their reply memorandum, the S S defendants argue that: 1) the parties negotiated the Letter Agreement in Texas; 2) the parties executed the Letter Agreement in Texas; 3) the S S shareholders are domiciled in Texas; 4) S S, Inc.'s principal place of business is in Texas; 5) most of the defendants in this action are not domiciled in New York; 6) most of the documents that will be relevant in this action are not in New York; and 7) the majority of the likely deponents are in Texas.
First, defendants have not demonstrated that the New York State court system will be in any way unduly burdened by retaining jurisdiction over this action. Second, the S S defendants' contentions regarding the potential hardship that they would suffer and their statements regarding the potential inconvenience to any likely witnesses, all consist of conclusory statements. Plaintiff has agreed to depose defendants at locations convenient to them. Although the Texas courts could provide a potential alternative forum in which to litigate this action, there is currently no litigation before those courts. Thus, there is no compelling reason to dismiss Cerberus's causes of action pursuant to the doctrine of forum non conveniens.
II. CPLR 3211 Arguments
The S S defendants next claim that the court should dismiss the complaint pursuant to CPLR 3211 (a) (1) because they did not sign the Letter Agreement in their individual capacities, but only as directors, officers and/or shareholders of S S, Inc. However, although Melinda S. Paulk initially signed the Letter Agreement as S S, Inc.'s president, she also signed it a second time on the next signature line in her individual capacity, after which Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr., and J. Russel Crews each subsequently followed suit. ( See Notice of Motion [motion sequence number 002], Schaffer Affirmation, Exhibit A-1 [the Letter Agreement]). Thus, the documentary evidence actually refutes the S S defendants' argument. Accordingly, the court rejects the S S defendants' request to dismiss the complaint pursuant to CPLR 3211 (a) (1).
The S S defendants next seek dismissal of Cerberus's causes of action for breach of contract and "breach of the express and implied duty to negotiate in good faith" pursuant to CPLR 3211 (a) (7).
The essential elements to pleading a cause of action for breach of contract are as follows: (1) the making of an agreement; (2) due performance by plaintiff; (3) breach thereof by defendant; and (4) causing damage to the plaintiff. The complaint must set forth the provisions of the contract and the terms of the agreement upon which liability is predicated, either by express reference or by attaching a copy of the contract.
( International Flavors Fragrances, Inc. v. Royal Ins. Co. of America, 6 Misc 3d 1024[A], 5 [Sup Ct NY County 2003] [internal citations omitted]). A cursory review of the complaint and the Letter Agreement annexed to it, reveals that Cerberus has clearly alleged all of the foregoing elements. The complaint actually alleges three instances of breach: 1) breach of the Letter Agreement's confidentiality provision; 2) breach of the Letter Agreement's exclusive negotiation provision; and 3) breach of the Letter Agreement's notification provision. ( See Memorandum of Law in Opposition to Motion, at 17, et seq.; Complaint, ¶¶ 49-52). These allegations are clearly sufficient for the purposes of this motion.
The S S defendants also argue that the court should dismiss Cerberus's cause of action for "breach of the express and implied duty to negotiate in good faith" as redundant of its cause of action for breach of contract. New York State law upholds a cause of action for breach of the implied covenant of good faith and fair dealing when a plaintiff alleges the defendant sought to prevent performance of the contract or to withhold its benefits from the plaintiff. ( See Zuckerwise v. Sorceron Inc., 289 AD2d at 114, citing Miller v. Almquist, 241 AD2d 181, 184-185 [1st Dept 1998]). "The implied covenant of good faith encompasses any promises which a reasonable person in the position of the promisee would be justified in understanding were included' in the agreement and prohibits either party from doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" ( Ruderman v. Stern, 6 Misc 3d 1015(A), 6 [Sup Ct, Kings County 2004], quoting 1-10 Industry Assocs. LLC v. Trim Corp. Of America, 297 AD2d 630, 631 [2nd Dept 2002]).
Here, as the court has repeatedly noted, Cerberus has sufficiently alleged that it had a reasonable expectation that it would successfully present and execute a purchase offer for S S, Inc., but for Patriarch's interference and the S S defendants' participation in that interference. Therefore, Cerberus has adequately pled its cause of action for the purposes of this motion. Accordingly, the court rejects the S S defendants' request to dismiss Cerberus's cause of action for "breach of the express and implied duty to negotiate in good faith" pursuant to CPLR 3211 (a) (7).
The S S defendants finally argue that Cerberus has inadequately pled the element of damages in both of its causes of action against them. Earlier in this decision, the court found that Cerberus's pleadings were adequate with respect to its allegation of out-of-pocket expenses. The court restates that finding here. However, the S S defendants also argue that damages for breach of the Letter Agreement's exclusivity provision are not recoverable as a matter of law.
The S S defendants argue that "if Snelling had no obligation to enter into an asset purchase agreement with Cerberus, it is irrational' and illogical' that any claims for breach of the [Letter Agreement] would result in damages since it is impossible to determine what agreement would have been reached and, therefore, no way to measure loss expectation." ( See Defendants' Reply Memorandum, at 15-16). The court disagrees. In Ashland Management Inc. v. Janien ( 82 NY2d 395), the Court of Appeals distinguished between one plaintiff's "irrational" and "illogical" lost profits claim that relied on a mere agreement to negotiate a contract and another plaintiff's sustainable claim that relied on an executed contract that "explicitly projected the dollar amounts [that the parties] anticipated to be invested in the enterprise and provided that [plaintiff] was entitled to 15% of revenues earned from those investments." ( Id. at 405). The S S defendants are correct that the Letter Agreement was a mere agreement to negotiate a contract. However, as the Court of Appeals observed in Ashland Management Inc.:
Damages resulting from the loss of future profits are often an approximation. The law does not require that they be determined with mathematical precision. It requires only that damages be capable of measurement based upon known reliable factors without undue speculation.
( Id. at 403). Cerberus's argument that a party may calculate lost profits by comparing the terms of its proposed asset purchase agreement, Patriarch's actual asset purchase agreement and any related financial documentation is persuasive because: 1) both Cerberus and Patriarch conducted extensive due diligence work with respect to S S, Inc.'s (then) present and future financial condition; 2) both Cerberus and Patriarch prepared their asset purchase agreements contemporaneously and those agreements contain substantial similarities; 3) the financial data that both companies relied upon in preparing those agreements is readily discoverable; and 4) the underlying transaction did not involve the creation of a "new business venture," but rather involved the continuation of an existing business under new management. Because Cerberus may establish its claim for lost profits damages with reasonable certainty, the court rejects the S S defendants' argument that Cerberus has inadequately pled the element of damages in both of its causes of action. Accordingly, the court denies the S S defendants' motion in all respects.
The Snelling Defendants' Motion
In the final motion before the court, the Snelling defendants seek dismissal of Cerberus's third cause of action, that also alleges tortious inducement to breach of contract. The Snelling defendants argue for dismissal based on: 1) lack of personal jurisdiction; 2) the doctrine of forum non conveniens; and 3) failure to state a cause of action, pursuant to CPLR 3211 (a) (7). For the following reasons, the court denies this motion.
The Snelling defendants initially argue that the court lacks personal jurisdiction over them. They analyze each of this state's jurisdictional statutes and conclude that none of the requirements have been satisfied in this case. (See Memorandum of Law in Support of Motion [motion sequence number 003], at 7-16). Cerberus responds that the Snelling defendants are subject to the court's jurisdiction under the following four theories: 1) pursuant to CPLR 302 (a) (1), because their in-state agents, XRoads and Maib, "transacted business" in New York on their behalf; 2) pursuant to CPLR 302 (a) (4), because the Letter Agreement contemplated the sale of S S, Inc.'s real property in New York; 3) pursuant to CPLR 302 (a) (2), because their in-state agents, XRoads and Maib, committed a tortious act within New York State; and/or 4) pursuant to CPLR 302 (a) (3) (ii), because they themselves committed a tortious act outside of New York State that caused Cerberus to suffer an injury in this state. (See Memorandum of Law in Opposition to Motion, at 7-19).
The court has already determined that CPLR 302 (a) (4) is unavailable to Cerberus as a jurisdictional basis because the Letter Agreement is not a contract for an actual transaction involving New York real property. The court now reiterates that holding with respect to the Snelling defendants' motion.
However, the court has also previously determined that CPLR 302 (a) (1) is available to Cerberus as a jurisdictional basis against the S S, Inc. defendants, because the complaint contains allegations sufficient to conclude that XRoads and Maib were the agents-in-fact for all of those defendants. The complaint contains the same allegations against the Snelling defendants; specifically, that they assisted in Maib's shadow negotiations with Patriarch by "discussing and negotiating" the terms of a "Competing Transaction" during the exclusive negotiation period and by "providing confidential information to third parties" in furtherance of that "Competing Transaction." ( See Complaint, ¶¶ 63-64). Further, Cerberus's opposition papers state that Maib was in contact with the Snelling defendants on a daily basis via telephone and that he "deferred to [them] for decisions regarding the negotiations and did not agree to anything until after he consulted with them." ( See Miller Affidavit in Opposition, ¶ 31). Therefore, the court rejects the Snelling defendants' first argument.
The Snelling defendants next argue that there is no "articulable nexus" between their alleged contact with New York State and Cerberus's cause of action against them. ( Id., at 12-13). However, for the same reasons the court discussed in the portion of this decision that disposed of the S S, Inc. defendants' motion, Cerberus has clearly articulated a "nexus" between the Snelling defendants' participation and direction in Maib's shadow negotiations and its own tortious interference claim against them. (See pg. 29, supra). Therefore, the court rejects the Snelling defendants' second argument. Cerberus has alleged sufficient facts to support an inference that Maib and XRoads were acting as the Snelling defendants' agents-in-fact in New York and that they "transacted business" in New York in that capacity. Accordingly, the court finds that Cerberus has satisfied the pleading requirements that are necessary to assert personal jurisdiction against the Snelling defendants under CPLR 302 (a) (1).
CPLR 302 (a) (2) permits the court to exercise personal jurisdiction over a non-domiciliary defendant "who in person or through an agent . . . commits a tortious act within the state." The allegations discussed in the foregoing paragraph clearly support the inference that the Snelling defendants, while in Texas, ordered their New York-based agent, Maib, to commit the tortious interference that Cerberus complains of in its fourth cause of action. In their memorandum, the Snelling defendants merely argue that they "were not present in New York" at the time of the alleged tortious interference. ( See Memorandum of Law in Support of Motion [motion sequence number 003], at 13). However, Cerberus correctly notes that a defendant need not be physically present in New York State in order to be subject to personal jurisdiction under CPLR 302 (a) (2). ( See Memorandum of Law in Opposition to Motion, at 14-15; see Courtroom Television Network v. Focus Media, Inc., 264 AD2d at 353, citing Parke-Bernet Galleries, Inc. v. Franklyn, 26 NY2d 13). Therefore, the court rejects the Snelling defendants' argument and finds that Cerberus has also pled sufficient facts to satisfy CPLR 302 (a) (2).
CPLR (a) (3) (ii) permits the court to exercise personal jurisdiction over a non-domiciliary defendant "who in person or through an agent . . . commits a tortious act without the state causing injury to person or property within the state . . . if he . . . expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce." The Snelling defendants first argue that Cerberus has failed to plead the occurrence of any "injury" in New York. ( See Memorandum of Law in Support of Motion [motion sequence number 003], at 13-15). The court rejects this argument for the same reasons it discussed in the portion of this decision that disposed of the S S, Inc. defendants "damages" argument.
The Snelling defendants next argue that Cerberus has failed to plead that they derive substantial income from business dealings in New York. ( See Memorandum of Law in Support of Motion [motion sequence number 003], at 14-15). This argument is clearly meritless. Cerberus specifically stated that the Snelling defendants were the majority shareholders of S S, Inc., and that "S S, Inc. is one of the largest staffing firms in the nation, with 39 company owned offices and 149 franchise operated offices" including one in New York. ( See Complaint, ¶¶ 4, 9, 15; Miller Affidavit in Opposition, ¶ 10). The only reasonable conclusion to draw from these pleadings is that the S S defendants derived substantial income from business dealings in New York. Therefore, the court rejects the Snelling defendants' second argument.
The Snelling defendants finally argue that Cerberus has not alleged facts to show that they should "reasonably [have] expected their allegedly tortious acts to have consequences in New York and [that] they derive substantial revenue from interstate or international commerce." ( See Memorandum of Law in Support of Motion [motion sequence number 003] at 13-15). This argument also clearly lacks merit. In addition to the allegations the court discussed in the preceding paragraph, the complaint also specifically alleges that the Snelling defendants knew about the existence and terms of the Letter Agreement. ( See Complaint, ¶ 62). This, in turn, supports the inference that the Snelling defendants should have known that their participation in shadow negotiations with Partiarch through Maib (who was in New York) would have had adverse consequences on Cerberus (in New York). Therefore, the court rejects the Snelling defendants' final argument as well and finds Cerberus has met the pleading requirements for asserting personal jurisdiction under CPLR 302 (a) (3) (ii). Because Cerberus has satisfied the pleading requirements of several of New York's jurisdictional statutes, the court now turns to federal due process analysis.
As previously discussed, "minimum contacts" exist where "a defendant's conduct and connection with the forum State' are such that it should reasonably anticipate being haled into court there.'" ( LaMarca v. Pak-Mor Mfg. Co., 95 NY2d at 216, quoting World-Wide Volkswagen Corp. v. Woodson, 444 US at 297). The Snelling defendants raise no argument on this point. Cerberus does not specifically address "minimum contacts" in its opposition papers either. Instead, Cerberus states, incorrectly, that merely satisfying one of the provisions of New York's long-arm statute obviates the need for any subsequent federal due process analysis. ( See Memorandum of Law in Opposition to Motion, at 19; see LaMarca v. Pak-Mor Mfg. Co., 95 NY2d at 214 [To determine whether a non-domiciliary may be sued in New York, we first determine whether our long-arm statute [CPLR 302] confers jurisdiction over it in light of its contacts with this State. If the defendant's relationship with New York falls within the terms of CPLR 302, we determine whether the exercise of jurisdiction comports with due process]). The court, however, finds that the pleadings clearly allege that the Snelling defendants do possess "minimum contacts" with New York State. As previously observed, the Appellate Division, First Department, holds that "electronic communications, telephone calls or letters . . . may be sufficient [to establish minimum contacts] if used by the defendant deliberately to project itself into business transactions occurring within New York State." ( Deutsche Bank Securities, Inc. v. Montana Bd. of Investments, 21 AD3d at 94). Here, the court has already held that Cerberus has sufficiently alleged that the Snelling defendants used those means to project itself into business in New York State. ( See Complaint, ¶¶ 63-64; Miller Affidavit in Opposition, ¶ 31). Accordingly, the court also finds that the Snelling defendants possess sufficient "minimum contacts" with New York State for the same reasons.
The second prong of federal due process analysis requires the court to determine whether its exercise of personal jurisdiction over a non-domiciliary defendant would comport with "traditional notions of fair play and substantial justice'." ( See LaMarca v. Pak-Mor Mfg. Co., 95 NY2d at 217, quoting Burger King Corp. v. Rudzewicz, 471 US at 476). The Snelling defendants argue that jurisdiction would be unfair because: 1) they are both Texas residents; 2) Robert O. Snelling only made one conference call into New York; and 3) Anne Snelling has had no contact at all with New York State for many years. ( See Memorandum of Law in Support of Motion [motion sequence number 003], at 15-16). Although Cerberus does not specifically address this argument in the context of federal law, the court notes that Cerberus has previously alleged that the Snelling defendants are the majority owners of a large, interstate business that has offices in New York. ( See Complaint, ¶¶ 4, 9, 15; Miller Affidavit in Opposition, ¶ 10). The court cannot detect anything offensive to "traditional notions of fair play and substantial justice" in the idea that the majority owners of such a business could possibly be haled into court in New York. Further, at several previous junctures in this decision the court has rejected the Snelling defendants' claim that the pleadings only allege a single conference call by Robert O. Snelling. It now does so again. Therefore, the court finds that Cerberus's pleadings satisfy both prongs of federal due process analysis. Accordingly, because the court has previously determined that Cerberus has also satisfied several of New York State's jurisdictional statutes, the court concludes that it is permissible to exercise personal jurisdiction over the Snelling defendants in this action and rejects their dismissal argument to the contrary.
The Snelling defendants next argue that the court should dismiss this action pursuant to the doctrine of forum non conveniens. They raise the same arguments, word for word, as the S S defendants did in their brief. ( See Memorandum of Law in Support of Motion [motion sequence number 003], at 16-18). Because these briefs set forth no new legal arguments and cite no factual distinctions between the Snelling defendants and the S S, Inc. defendants, the court concludes, as it did in the portion of this decision that dealt with the S S, Inc. defendants' identical argument, that there are no grounds for applying the doctrine of forum non conveniens in this action. Accordingly, for the reasons stated earlier, the court rejects the Snelling defendants' second dismissal argument.
Finally, the Snelling defendants argue that the court should dismiss Cerberus' cause of action against them for tortious inducement to breach of contract for failure to state a claim. As previously mentioned, the party propounding this claim must allege "the existence of a valid contract, the tortfeasor's knowledge of the contract and intentional interference with it, the resulting breach and damages." ( Hoag v. Chancellor, Inc., 246 AD2d at 228). The Snelling defendants argue only that "the [c]omplaint identifies not a single fact indicating the [Snelling defendants] intentionally induced any breach or otherwise rendered performance of the [Letter Agreement] impossible." ( See Memorandum of Law in Support of Motion (motion sequence number 003), at 19). Cerberus responds that: 1) the Snelling defendants demanded new and unreasonably high annuity payments in the eleventh hour of contract negotiations with Cerberus as a "subterfuge" to assist in stalling those negotiations while Maib conducted shadow negotiations with Patriarch; and 2) the Snelling defendants assisted in those shadow negotiations by "providing confidential information to third parties and negotiating a Competing Transaction during the Exclusivity Period." ( See Memorandum of Law in Opposition to Motion, at 20; See also Complaint, ¶¶ 33-43, 63-64). The court has already decided that those allegations were sufficient to state the "intentional interference" element of Cerberus's tortious interference claim against the S S defendants. For the same reasons, the court now makes the same determination with respect to Cerberus's tortious interference claim against the Snelling defendants. Therefore, the court concludes that Cerberus has adequately pled its third cause of action. Accordingly, the court rejects the Snelling defendants' final dismissal argument and denies this motion in its entirety.
DECISION
ACCORDINGLY, for the foregoing reasons, it is hereby
ORDERED that the motion, pursuant to CPLR 3211, of defendants Patriarch Partners, LLC and Lynn Tilton is granted to the extent of dismissing the fifth cause of action for tortious interference with prospective business relations and is otherwise denied; and it is further
ORDERED that the motion, pursuant to CPLR 3211, of defendants Snelling Snelling, Inc., Melinda S. Paulk, Robert R. Paulk, Richard H. Spragins, Robert O. Snelling, Jr. and J. Russel Crews is, in all respects, denied; and it is further
ORDERED that the motion, pursuant to CPLR 3211, of defendants Robert O. Snelling, Sr. and Anne Snelling is, in all respects, denied; and it is further
ORDERED that the defendants are each directed to serve an answer to the complaint within 10 days after service of a copy of this order with notice of entry; and it is further
ORDERED that the parties shall appear for a discovery conference on January 5, 2006 at 10:00 a.m. in Part 03, courtroom 248, 60 Centre Street, New York, NY.