Opinion
00-CV-1767 (HGM/GJD)
July 30, 2002
John L. Murad, Jr., Esq., John G. Powers, Esq., Hancock Estabrook, LLP, Syracuse, NY, for Plaintiff.
Jon P. Devendorf, Esq., Hiscock Barclay, LLP, Syracuse, NY, for Defendants.
MEMORANDUM — DECISION AND ORDER
Presently before this court are defendants' motions to dismiss this action pursuant to Fed.R.Civ.Proc. 12(b)(2) and 12(b)(6), and/or transfer the venue of this action to the Northern District of Illinois pursuant to 28 U.S.C. § 1404(a). Plaintiff opposes the motions. For the following reasons, defendants' motion to dismiss is DENIED and the motion to transfer is GRANTED.
FACTS
Plaintiff G.A. Braun, Inc. is a New York corporation based in Syracuse, New York. Syracuse is located in the Northern District of New York. Plaintiff manufactures, assembles, and sells commercial laundry equipment nationwide.
Defendants Samuel I. Giarratano and Thomas J. Ames are Illinois residents who were officers and shareholders of GA Laundry Systems, Inc. ("GA"), an Illinois corporation, before the corporation was dissolved in bankruptcy. GA was a distributor and manufacturer's representative for plaintiff in Illinois and other Midwestern states. The defendants have no other relationship with New York other than their prior relationship with plaintiff through GA.
In September 2000, plaintiff filed suit against the defendants in their capacities as officers and shareholders of GA in New York Supreme Court, Onondaga County. Plaintiff alleged, inter alia, civil RICO, unfair competition, and breach of contract claims against the individual defendants.
Following service of process upon the defendants in Illinois, the action was removed to this court, and all claims have since been removed except the unfair competition, fraud, and common law misappropriation of trade secrets. The allegations underlying these claims maintain that GA failed to properly promote the business interests of plaintiff with customers, and that confidential information of plaintiff was improperly used with customers in Illinois and the Midwest.
DISCUSSION I. Motion to Dismiss
Defendants moved to dismiss this case for lack of personal jurisdiction pursuant to Fed.R.Civ.Proc. 12(b)(2) and for failure to state a claim pursuant to Fed.R.Civ.Proc. 12(b)(6).
A. Personal Jurisdiction
To defeat a motion to dismiss, plaintiff need only make a prima facie case for personal jurisdiction. See A.I. Trade Finance, 989 F.2d 76, 79-80 (2d Cir. 1993). Federal courts in diversity cases "must look to the forum state's long-arm statute to determine if personal jurisdiction may be obtained over a nonresident defendant." Savin v. Ranier, 898 F.2d 304, 306 (2d Cir. 1990).
Plaintiff contends that New York's long-arm statute provides two grounds on which personal jurisdiction may rest. First, plaintiff argues that jurisdiction is proper under C.P.L.R. § 302(a)(3)(ii) because defendants committed a tortious act outside the state that caused an injury inside New York.
Second, plaintiff argues that this court has personal jurisdiction over defendants because they transacted business within New York, bringing defendant within the scope of C.P.L.R. § 302(a)(1).
1. C.P.L.R. § 302(a)(3)(ii)
The conferral of jurisdiction under C.P.L.R. § 302(a)(3)(ii) rests on four elements: (1) defendant committed a tortious act outside the State; (2) the tortious act caused injury to plaintiff in the State; (3) defendant expected or should reasonably have expected the act to have consequences in the State; and (4) defendant derived substantial revenue from interstate or international commerce. See Whitaker v. Fresno Telstat, Inc., 87 F. Supp.2d 227, 231 (S.D.N.Y. 1999).
As for the first two elements, plaintiff alleges that a tortious act was committed in Illinois, and that it was injured by that act while in Syracuse, New York. Therefore, plaintiff has sufficiently plead the first two elements.
The third element requires that the non-resident tortfeasor must expect or have reason to expect their action will have a direct effect on a resident of New York. Id. The purpose of this element is to make sure there is a connection between the defendant and New York State to make it reasonable to require the defendant to answer for a tort committed elsewhere. See Hein v. Cuprum, 136 F. Supp.2d 63, 68 (N.D.N.Y. 2001) (Kahn, J.). In the instant case, the defendants should have known that their fraudulent misrepresentations would have an effect on plaintiff. These misrepresentations were made in order to induce plaintiff to engage in further contractual relations with defendants and were relied upon in New York State. Plaintiff's reliance on defendants' statements directly contributed to the alleged damages caused by defendants' alleged fraud, unfair competition, and misappropriation of trade secrets. Defendants should have known that their action would have a direct effect on a resident of New York. Therefore, the third element is satisfied.
In order to satisfy the fourth element, defendants must derive substantial revenue from interstate commerce. Id. at 67. This is clearly met in this case. Both Ames and Giarratano derived substantial benefit from interstate commerce as the owners of GA Laundry, which sold millions of dollars of equipment made in New York to purchasers in various states.
As the elements of C.P.L.R. § 302(a)(3) have been met, the requirements of personal jurisdiction have been satisfied. Plaintiff alleges that a tortious act has been committed outside of New York State that has had a direct effect in New York State, defendants should have known that their action would cause a direct effect inside New York State, and defendants derive substantial revenue from interstate commerce.
2. C.P.L.R. § 302(a)(1)
New York provides for jurisdiction over any non-domiciliary who "transacts any business in the state." C.P.L.R. § 302(a)(1). There are a number of factors governing this standard, including: (1) whether the defendant has an on-going contractual relationship with a New York corporation; (2) whether the contract was signed in New York; (3) whether defendants have traveled to New York to negotiate with parties to the contract; (4) what the choice of law clause in the contract provides; and (5) whether the contract requires the defendant to send payments or notices to the forum state. See Agency Rent A Car System, Inc. v. Grand Rent a Car Corp., 98 F.3d 25, 29 (2d Cir. 1996).
Defendants clearly transacted business in New York under the standard of C.P.L.R. § 302(a)(1). Defendants were officers of a corporation which had an on-going contractual relationship with plaintiff, a New York corporation. Defendants made periodic visits to New York for meetings and to develop new opportunities with new clients. Purchases and checks were sent into New York by defendants. Defendants were also required by agreement to have weekly contact with plaintiff.
Defendants' attempt to use the "fiduciary shield doctrine" to argue that while their now-defunct corporation may have transacted business in New York, its contacts to New York cannot be attributed to defendants is not valid. "The long-arm statute was not `intended to accord any special treatment to fiduciaries acting on behalf of a corporation or insulate them from long arm jurisdiction performed in a corporate capacity.'" Reynolds Corp. v. Nat'l Operator Services, Inc., 73 F. Supp.2d 299, 303 (W.D.N.Y. 1999) (quoting Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 470 (1988)).
Thus, if a corporation engaged in business in New York for the benefit of and with the consent of the defendants, and if the defendants exercised at least some control over the corporation, then there is personal jurisdiction over the defendants. See id. In this case, the individual defendants were both the owners and officers of a corporation that transacted business with the plaintiff. The defendants' numerous trips and mailings to New York and the fact that they were the sole individuals exercising control over their now defunct corporation are more than sufficient to establish personal jurisdiction over the defendants in their individual capacities.
Personal jurisdiction over the defendants can be established under C.P.L.R. §§ 302(a)(1) or 302(a)(3)(ii). As a result, defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(2) is denied.
B. Failure to State a Claim
A dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure is a dismissal on the merits of the action, a determination that the facts alleged in the complaint fail to state a claim upon which relief may be granted. See Teltronics Services, Inc. v. L M Ericsson Telecommunication, Inc., 642 F.2d 31, 34 (2d Cir. 1981). Such a dismissal is appropriate where "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). Therefore, the issue before the court on such a motion "is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." King v. Simpson, 189 F.3d 284, 287 (2d Cir. 1999). "The task of the court in ruling on a Rule 12(b)(6) motion is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (internal quotations omitted). Accordingly, in order to decide a Rule 12(b)(6) motion, the court must accept as true all of the allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in a light most favorable to the non-moving party. See Harris, 186 F.3d at 247. However, a "complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6)." DeJesus v. Sears, Roebuck Co., 87 F.3d 65, 70 (2d Cir. 1996) (internal quotations omitted).
When deciding a Rule 12(b)(6) motion, the court generally limits itself to the facts stated in the complaint, documents attached to the complaint as exhibits, or documents incorporated by reference in the complaint. See Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). If the court looks to additional materials, the motion should be converted into a motion for summary judgment. See Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999).
However, where the court simply refers to supplementary materials, but does not rely to them or use them as a basis for its decision, the 12(b)(6) motion is not converted into a motion for summary judgment. See id. With this standard in mind, the court turns to the sufficiency of plaintiff's claim.
1. Unfair Competition
A wide variety of illegal practices fall within common law unfair competition in New York. See Blank v. Pollock, 916 F. Supp. 165, 173 (N.D.N.Y. 1996) (McAvoy, C.J.). A cause of action for unfair competition exists where the defendant: (1) misappropriates the skill, expenditures, and labor of the plaintiff; (2) to its own commercial advantage; (3) in bad faith or with some form of commercial immorality. See Roy Export Co. v. Columbia Broadcasting System, 672 F.2d 1095, 1105 (2d Cir. 1982).
Plaintiff has stated a claim for unfair competition. Plaintiff alleges defendants have misappropriated confidential and customer information belonging to plaintiff in order to further its own advantage. Defendants are alleged to have done these acts in bad faith through the use of fraudulent statements. These acts have allegedly caused economic injury to the plaintiff and damage to its reputation and good will.
2. Misappropriation of Trade Secrets
A plaintiff claiming misappropriation of a trade secret must prove: "(1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Integrated Cash Management Services, Inc. v. Digital Transactions, 920 F.2d 171, 173 (2d Cir. 1990). New York law states that a trade secret can be a "compilation of information which is used in one's business, and which gives [one the] opportunity to obtain an advantage over competitors who do not use it." Hudson Hotels Corp. v. Choice Hotels International, 995 F.2d 1173, 1176 (2d Cir. 1993).
The type of information that is alleged to be misappropriated by the defendants is the type of information that constitutes a trade secret under New York law. See Tulchin Associates v. Vignola, 587 N.Y.S.2d 761, 763 (2d Dept. 1992). In Tulchin, client lists that contained information regarding the volume of business conducted were considered trade secrets under New York law. The trade secrets in Tulchin are similar to the confidential and customer information that plaintiff alleges has been misappropriated. Plaintiff also alleges that defendants acquired this information in breach of their agreement with defendants. Thus, plaintiff has adequately pled both elements of a claim for common law misappropriation of trade secrets.
3. Fraud
A sufficiently plead fraud claim must: (1) detail the statements or omissions that the plaintiff contends are fraudulent; (2) identify the speaker; (3) state where and when these statements or omissions were made; (4) explain why the statements or omissions were fraudulent. See Olsen v. Pratt Whitney Aircraft, 136 F.3d 273, 275 (2d Cir. 1998).
Plaintiff has met these specific requirements in their Amended Complaint. Statements have been identified; for example, defendant Giarratano stated that neither he nor defendant Ames had any interest in Five Star, Inc., a newly-formed Chicago laundry. See Am. Comp. ¶¶ 17-20. Speakers have been identified. See id. These statements were made in correspondence sent to plaintiff as well as in oral representations to representatives of plaintiff. See id. This statement was fraudulent because at the time defendants had an interest in Five Star, Inc. See Am. Comp. ¶ 22. These statements have been alleged to have been false and known to be false by the speakers, and it alleges reliance upon these statements.
Fed.R.Civ.P. 9(b) provides that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." To pass muster under Rule 9(b), "the complaint must allege the time, place, speaker, and sometimes even the content of the alleged misrepresentation." Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir. 1990). Plaintiff has clearly satisfied this requirement. The Amended Complaint contains a sufficient amount of specific information regarding defendants' alleged fraudulent activity.
Defendants allege that plaintiff's fraud claim is based upon an alleged misrepresentation of one of the defendant's intent to perform future contractual duties. This would not be fraud under New York law, as fraud is only the misrepresentation of a present fact, not of future intent. See Stewart v. Jackson Nash, 976 F.2d 86, 89 (2d Cir. 1992). However, there are sufficient allegations of misrepresentations of present facts in the Amended Complaint; e.g., plaintiff contends that defendants said that they had no ownership interest in Five Star, Inc., which in fact they did at the time.
Therefore, plaintiff's fraud claim has been adequately plead to deny the motion to dismiss for failure to state a claim.
II. Motion to Transfer Venue
Title 28, Section 1404(a) of the United States Code provides that "[f]or 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." The decision to transfer is in the discretion of the judge. However, in making this determination, the court considers:
(1) the convenience of witnesses, (2) the location of relevant documents and the relative ease of access to sources of proof, (3) the convenience of the parties, (4) the locus of operative facts, (5) the availability of process to compel the attendance of unwilling witnesses, (6) the relative means of the parties, (7) the forum's familiarity with the governing law, (8) the weight accorded plaintiff's choice of forum, and (9) trial efficiency and the interest of justice based on the totality of the circumstances.
Wiltshire Credit Corp v. Capital Mgmt. Corp., 976 F. Supp. 174, 181 (W.D.N.Y. 1997). The moving party bears a substantial burden to establish that transfer of the case is in the interest of justice. See Family Realty Construction Co., Ltd. v. Manufacturers and Traders Trust, 931 F. Supp. 141, 143 (N.D.N.Y. 1996) (McAvoy, C.J.). The court will not transfer a case without a "clear-cut and convincing showing that the balance of convenience weighs strongly in favor of the transferee court." Id. Unless the moving party carries this burden, the plaintiff's choice of forum is given considerable deference. See Systemation, Inc. v. Engel Indus., Inc., 992 F. Supp. 58, 63 (D.Mass. 1997). With the foregoing standard in mind, the court will proceed to consider whether a transfer to Illinois is warranted.
A. Forum Selection
Prior to examining the Wiltshire factors, plaintiff argues that the "parties" to this action fixed the venue of case in this jurisdiction. It is true that in several of the contracts between plaintiff and GA, GA agreed to the jurisdiction of a New York court. However, GA is no longer a defendant in this action, as the corporation no longer exists. The individual defendants never accepted the jurisdiction of a New York court, and therefore the mandatory forum selection clause of the plaintiff and GA contracts is not applicable.
B. Convenience of the Parties
Party convenience is an important factor in determining whether to transfer a case. Plaintiff argues that defendants seek to shift the inconvenience of this litigation. However, the majority of the parties in this action are located in Illinois. Defendants Mr. Giarratano and Mr. Ames are both Illinois residents, and plaintiff is a New York corporation based in Syracuse, New York. Thus, this factor weighs in favor of transfer.
C. Convenience of Witnesses
Courts have held that the convenience of "witnesses" is a very important factor in the transfer analysis. See Dwyer v. General Motors Corp., 853 F. Supp. 690, 692 (S.D.N.Y. 1994).
In addition to being the residence of the defendants, Illinois is the location of Five Star, many former employees of GA, and many of GA's former customers, all of whose testimony may be needed. The ability to compel the attendance of witnesses for trial weighs heavily in favor of transfer.
Plaintiff argues that the location of many of the witnesses is irrelevant because the principal claims revolve around contract interpretation and the testimony of party witnesses. However, the proof and defense of plaintiff's claims will depend largely on events, documents, and witnesses found outside the Northern District of New York and within the Northern District of Illinois. Therefore, this factor weighs in favor of transfer.
D. Locus of Events and Operative Facts
The location of the key events and facts support the transfer of the case. Illinois is where the operative events of plaintiff's complaint took place. It is where the alleged confidential information and trade secrets were misused, where the alleged non-party wrongdoers (e.g., Five Star) are located, and where the alleged victims are located. The allegations and claims set forth by plaintiff have little connection to New York. Plaintiff argues again that most of the defendants' liability will be established on the contracts, despite the fact that no contract claim lies against the individual defendants. As the overwhelming number of events took place in Illinois, this factor weighs in support of transfer.
E. Relative Means of the Parties
Where there is a disparity in the means of the parties, the court may consider their relative means in determining whether transfer of venue is appropriate. See Hernandez v. Graebel Van Lines, 761 F. Supp. 983, 988-89 (E.D.N.Y. 1991). All things considered, plaintiff, a corporation, is far better able to litigate in Illinois than the individual defendants are able to litigate in New York. This factor weighs in support of transfer.
F. Familiarity with Controlling Law
Familiarity with the controlling law is one of the least important factors. See Dwyer, 853 F. Supp. at 694. The choice of law provision in the contract between GA and plaintiff stated that New York law would apply, weighing against transfer. However, as previously mentioned, GA no longer exists as a corporation due to an Illinois bankruptcy proceeding.
G. Trial Efficiency and the Interests of Justice
All things considered, it is in the interest of trial efficiency and justice that this case be transferred to the Northern District of Illinois. The key events, witnesses, and sources of proof are located in Illinois, which is also the jurisdiction of GA's bankruptcy. A transfer will also reduce the expenses of the individual defendants who are facing a corporate plaintiff. As the defendants have no contact with New York, other than the contracts between GA and plaintiff, and all the events at issue took place in Illinois, transfer is appropriate in this case.
CONCLUSION
WHEREFORE, based on the findings above, it is hereby
ORDERED, that defendant's motion to dismiss is DENIED. It is further
ORDERED, that defendant's motion to transfer venue to the Northern District of Illinois is GRANTED. IT IS SO ORDERED.