Opinion
20-CV-3880 (GRB)
2021-08-24
Jim EVANS and Dave Franklin, Plaintiffs, v. NEXTECH AR SOLUTIONS CORP., Defendant.
Craig Herrington Kuglar, Law Firm of Craig H. Kuglar, P.C., Brooklyn, NY, for Plaintiffs. Robert L. Herskovits, Joseph P. Allgor, Herskovits PLLC, New York, NY, for Defendant.
Craig Herrington Kuglar, Law Firm of Craig H. Kuglar, P.C., Brooklyn, NY, for Plaintiffs.
Robert L. Herskovits, Joseph P. Allgor, Herskovits PLLC, New York, NY, for Defendant.
MEMORANDUM OF DECISION & ORDER
GARY R. BROWN, United States District Judge:
In our increasingly globalized economy, many cases present exquisitely complex questions of personal jurisdiction. This is not one of them.
Defendant NexTech AR Solutions Corp. ("defendant" or "NexTech"), a Canadian entity which, until the filing of this action, maintained an executive office for its the CEO in the State of New York (from which he negotiated, in part, the subscription purchase agreement that is the subject of the instant dispute), and which captioned many of its corporate press releases as emanating from "New York and Toronto," contends that it lacked sufficient contacts with New York to be haled into court here. Thus, defendant seeks dismissal under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Docket Entry ("DE") 15. Plaintiffs Jim Evans and Dave Franklin ("plaintiffs"), two investors from Georgia who claim to have been mistreated by NexTech, justifiably dispute this claim. DE 16, 18.
The relevant facts presented on this motion prove overwhelming. In their complaint, plaintiffs allege that NexTech is a Canadian corporation that does business in the U.S. and maintains offices in New York, Texas and California. DE 1 ¶ 3. Plaintiffs further allege that NexTech's CEO "operates the Company" from a Suffolk County, New York office, and that he resides in this district. Id. ¶ 5. Part of the dispute involves an email sent directly from the CEO in the New York office to the plaintiffs concerning the redemption of the warrants subject to the subscription agreement. Id. ¶ 15. The complaint further details actions taken by the CEO beginning in December 2019 that led to the instant litigation. Id. ¶¶ 25-26.
In opposing this motion, plaintiffs have supplemented these allegations with significant factual materials:
a. A February 28, 2018 email from the CEO attaching NexTech marketing materials, a term sheet, and a bio of the CEO, and listing three Suffolk County, NY telephone numbers for the CEO. DE 16-2, Ex. A.
b. A July 8, 2020 Press Release announcing the Company's filing to uplist to NASDAQ captioned "New York, NY – Toronto, ON". DE 16-2, Ex. F.
c. An SEC Registration Statement listing the CEO's name, Suffolk County home address and phone number as the "agent for service in the United States." DE 16-2, Ex. H.
d. A series of press releases touting business developments, private placements, financial results, etc. dated June 18, 2020 and captioned "New York, NY – Toronto, ON". DE 16-2, Ex. I.
e. The transcript of an earnings call in which the CEO states that New York is "where I spend most of my time." DE 16-2, Ex E.
f. Sworn statements that plaintiffs had "numerous conversations" with the CEO of NexTech concerning the disputed investments, during which conversations the CEO represented that he was working for NexTech from New York. DE 16-2, Evans Decl. ¶ 7.
For its part, defendant points to the fact that it is a Canadian company and emphasizes that the subscription agreement related to purchase of Canadian shares in exchange for a transfer of funds to Canada with a non-mandatory forum selection clause. DE 15 at 4. While it describes its connection to New York as "most tenuous," DE 15 at 8, defendant concedes that it maintained the New York office for its CEO and paid rent through August 2020. DE 15-1 at 57.
Judge Bianco has provided a helpful summary of the relevant law:
It is well settled that "[i]n diversity or federal question cases the court must look first to the long-arm statute of the forum state, in this instance, New York." Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). "If the exercise of jurisdiction is appropriate under that statute, the court must then decide whether such exercise comports with the requisites of due process." Id. Thus, the district court should engage in a two-part analysis in resolving personal jurisdiction issues: (1) whether New York law would confer jurisdiction by New York courts over the defendant, and (2) whether the exercise of jurisdiction over the defendant comports with the Due Process Clause of the Fourteenth Amendment. See Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158, 165 (2d Cir. 2005). "Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith ... legally sufficient allegations of jurisdiction." Ball v. Metallurgie Hoboken–Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990).
Under New York law, there are two bases for personal jurisdiction over out-of-state defendants: (1) general jurisdiction pursuant to N.Y. C.P.L.R. § 301, and (2) long-arm jurisdiction pursuant to N.Y. C.P.L.R. § 302. Here, plaintiff relies on Section 302, arguing that Lin and iTV(HK) have sufficient business contacts with New York to create long-arm, or "specific" jurisdiction. "New York courts evaluating specific jurisdiction
.... must decide (1) whether the defendant ‘transacts any business’ in New York and, if so, (2) whether this cause of action ‘aris[es] from’ such a business transaction." Best Van Lines, Inc. v. Walker, 490 F.3d 239, 246 (2d Cir. 2007) ; N.Y. C.P.L.R. § 302(a).
Tianbo Huang v. iTV Media, Inc., 13 F. Supp. 3d 246, 254 (E.D.N.Y. 2014) (finding exercise of jurisdiction over company and CEO in New York appropriate given "his choice to conduct business there"). While plaintiffs rely on both general and specific jurisdiction theories, the Court need not venture further than specific jurisdiction to resolve this motion.
The Second Circuit has held that:
Section 302(a)(1) of the New York state long-arm statute provides that a court may exercise personal jurisdiction over any foreign defendant if that defendant "transacts any business within the state," and the claim arises from those business transactions. Several factors should be considered in determining whether an out-of-state defendant transacts business in New York, including: (i) whether the defendant has an on-going contractual relationship with a New York corporation; (ii) whether the contract was negotiated or executed in New York and whether, after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship; (iii) what the choice-of-law clause is in any such contract; and (iv) whether the contract requires franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state.
Although all factors are relevant, no one factor is dispositive and other factors may be considered. The ultimate determination is based on the totality of the circumstances.
Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 22–23 (2d Cir. 2004) (alteration omitted).
On the facts of this case, application of this test, as well as that formulated by Judge Spatt in Photoactive Prods., Inc. v. AL-OR Int'l Ltd., 99 F. Supp. 2d 281, 288 (E.D.N.Y. 2000), prove somewhat incongruous. Using these factors, though, both contract negotiations as well as ongoing meetings regarding the relationship were conducted electronically by the defendant from New York. Such elements, standing alone, have long been held by to suffice under the statute. See, e.g., EED Holdings v. Palmer Johnson Acquisition Corp., 387 F. Supp. 2d 265, 272-73 (S.D.N.Y. 2004) (defendant's officer conducting preliminary negotiations in New York held to be transacting business under CPLR 302 ); United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc. , 216 F. Supp. 2d 198, 205 (S.D.N.Y. 2002) (exercise of long-arm jurisdiction based upon meetings and electronic communications concerning contract). On balance, the totality of the circumstances satisfies the statute.
Citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985), defendant argues that the "single email" from the CEO in New York to plaintiffs in Georgia cannot satisfy the minimum contacts required for the exercise of personal jurisdiction under the Due Process Clause. DE 17 at 7. This argument fails for several reasons. First, the "single email" contained a vast amount of material, such that it appears to have been critical to negotiation of the agreement. Second, this argument oversimplifies the proof; plaintiffs point to other communications emanating from New York that are integral to this dispute. Third, and most important, defendant's argument turns the law upon its head. The Burger King decision analyzed minimum contacts where "a commercial actor's efforts are ‘purposefully directed’ toward residents of another State." 471 U.S. at 476, 105 S.Ct. 2174. Here, where the CEO was conducting business from an office established by the company within the forum state, it cannot reasonably be said that the defendant did not satisfy the "purposeful availment" requirement. Id.
Based on the foregoing, the motion to dismiss, DE 15, is DENIED.