Opinion
01 CIV. 8419 (DLC).
February 13, 2002
Peter L. Altieri, Ann L. Moscow, Epstein, Becker Green, P.C., New York, NY., For Plaintiff.
Julie E. Green, Hill Barlow, Boston, MA, For Defendant.
OPINION AND ORDER
In this action, plaintiff Pfizer Inc ("Pfizer") alleges breach of contract by defendant Steven C. Gilman ("Gilman"), a former Pfizer employee. Specifically, Pfizer alleges that Gilman violated the forfeiture-for-competition provisions of his 1997, 1998, and 1999 Key Employee Stock Option Grants ("Stock Option Grants") by exercising in August and November of 2000, certain of the options provided under the Stock Option Grants, accepting employment with a Pfizer competitor within one year of such exercises, and then refusing to forfeit to Pfizer all gains realized by such exercises. Pursuant to Rule 12(b)(2), Fed.R.Civ.P., Gilman brings this motion to dismiss for lack of personal jurisdiction. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.
Background
Pfizer is a Delaware corporation with its principal place of business in New York City. Gilman worked for Pfizer at its Central Research facility in Groton, Connecticut from November 7, 1994 to September 25, 2000, during which he attended meetings at Pfizer's New York City headquarters approximately twice a year. Throughout that time, Gilman was a resident of Connecticut. On October 1, 2000, Gilman began working for Millennium Pharmaceuticals, Inc. ("Millennium"), located in Cambridge, Massachusetts and became a resident of Massachusetts, where he still resides.
Pfizer states that Gilman's employment began at Pfizer in September 1994.
Gilman's Stock Option Grants
Pursuant to the Pfizer Inc Stock and Incentive Plan ("the Plan"), Pfizer granted Gilman Stock Options Grants yearly from 1995 through 1999, by annual letter from its New York City headquarters. Enclosed with each letter was a Points of Interest booklet which set forth the terms and conditions of the grants. Although the Points of Interest booklets were updated from year to year at least from 1997 to 1999, the provisions that are at issue remained essentially the same in those booklets that the parties have submitted to the Court. A forfeiture-for- competition provision mandated that, as a condition of accepting a Stock Option Grant, the recipient agrees, inter alia, that if he or she accepts employment with a Pfizer competitor within one year of the exercise of any options provided under the grant, then he or she must pay Pfizer any gain realized through such exercise.
The Points of Interest booklets also contained detailed instructions on how to exercise the options provided under the Stock Option Grants. The booklets instructed the recipient of a grant who sought to exercise his or her options to submit a stock option exercise form to the Benefit Financing Department (or, as of 1998, the Benefit Administration Department) in the Treasurer's Division located at Pfizer's New York City Headquarters. These forms could be obtained from either the employee's Employee Resource Representative or the Benefit Financing Department. The Points of Interest booklets further instructed that if the recipient of a Stock Option Grant had any questions, he or she should telephone the Benefit Financing Department by either of two numbers given, the first toll-free, the second beginning with a New York City 212 area code. Each of the Points of Interest Booklets also stated that the ownership of shares pursuant to the exercise of options would become effective when the Benefit Financing Department in the Treasurer's Division received the stock option exercise form, any necessary payment, and, where appropriate, telephone instructions from the recipient.
The stock option exercise forms changed from year to year. Some of the exercise forms used by Gilman in 1997 and 1998 instruct that the form be returned to the "Payroll office from which you are paid" or to "your Personnel Representative or Benefit Financing NYC."
The Plan, a copy of which Gilman received at some point during his employment with Pfizer, contained a New York choice of law provision. None of the Points of Interest booklets contained such a provision.
Gilman's Exercise of Options Provided by the Stock Option Grants
On ten different dates in 1997, 1998 and 2000, Gilman exercised various options granted to him pursuant to the Plan. The last four of these dates (August 8, August 16, August 31, and November 7, 2000) occurred within one year of Gilman's acceptance of employment with Millennium. On these dates, Gilman engaged in a total of eleven transactions, of which eight were stock option exercise and sell transactions and three were stock purchases, for an aggregate gain of $756,809.98.
To complete each transaction, Gilman obtained a stock option exercise form from the human resources office at Pfizer's Groton facility, completed the form, and then either returned it by hand or mailed it to the same office at the Groton facility. Gilman states that he "believe[s] that these forms were then sent on to Pfizer's offices in New York." Within three to five days after his submission of a form, Gilman's exercise would become "active." Gilman completed each exercise by telephoning a representative at the Pfizer Employee Service Center in New York. The Pfizer representative would then initiate a three-way conference call with a stock broker in New York who would perform the transaction on Gilman's oral authorization.
For each of the four transactions in August and November 2000, Gilman used either a Merrill Lynch brokerage account, whose statements carried a New York City return address, or a Prudential brokerage account, whose statements carried a White Plains, New York return address. Gilman established the Merrill Lynch account in August 1997, when he first exercised Pfizer stock options. At some time after August 1997, Gilman established the Prudential account. Gilman alleges that in both instances, it was the Pfizer representative, and not Gilman, who selected the broker with whom Gilman then established his account.
By letter dated June 26, 2001, Teresa Holland, Assistant General Counsel and Assistant Secretary at Pfizer's New York City headquarters, wrote to Gilman at his Cambridge, Massachusetts address requesting that he pay to Pfizer his gains from the August and November 2000 exercises pursuant to the forfeiture- for-competition provision in the Points of Interest booklets. Gilman refused to do so. This lawsuit followed.
Discussion
In a diversity case, the issue of personal jurisdiction must be determined according to the law of the forum state. See Agency Rent A Car Sys., Inc. v. Grant Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996). "If the exercise of jurisdiction is appropriate under [the state's statutes], the court then must decide whether such exercise comports with the requisites of due process." Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). It is well established that on a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, "the plaintiff bears the burden of showing that the court has jurisdiction over the defendant." Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). Where, as here, there has been no discovery and no evidentiary hearing on the issue, a plaintiff "need only make a prima facie showing by its pleadings and affidavits that jurisdiction exists." CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). "[W]here the issue is addressed on affidavits, all allegations are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor." A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).
1. Personal Jurisdiction
Under New York Law Pfizer argues that this Court has long-arm jurisdiction over Gilman pursuant to New York's Civil Practice Law and Rules ("CPLR") § 302(a)(1), which allows the exercise of personal jurisdiction over an out-of-state defendant if the defendant "transacts any business within the state" and the cause of action "arises from" that business activity. CutCo, 806 F.2d at 365.
Section 302(a) states:
As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state.
CPLR § 302(a).
"Transacts Any Business"
In order to meet the transacting business element under Section 302(a)(1), a plaintiff must show that the defendant "purposefully availed himself of the privilege of conducting activities within New York and thereby invoked the benefits and protections of its laws." Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 787 (2d Cir. 1999) (citation omitted). At a minimum, "there must be some transaction attributable to the one sought to be held which occurs in New York." Id. (citation omitted) (emphasis in original). Although a single purposeful act in New York can be sufficient to support jurisdiction, see Longines-Wittnauer Watch Co. v. Barnes Reinecke, Inc., 15 N.Y.2d 443, 456 (1965), the nature and quality of the New York contacts must be examined to determine their significance. George Reiner Co. v. Schwartz, 41 N.Y.2d 648, 650 (1977). "No single event or contact connecting defendant to the forum state need be demonstrated; rather, the totality of all defendant's contacts with the forum state must indicate that the exercise of jurisdiction would be proper." CutCo, 806 F.2d at 365. The requisite "minimum contacts" must provide a fair warning to the defendant of the possibility of being subject to the jurisdiction of New York courts. See Kreutter v. McFadden Oil Corp., 527 N.Y.S.2d 195, 198 (1988) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)).
Pfizer argues that Gilman's maintenance of two brokerage accounts in New York from as early as 1997 to 2000, which he made use of either by telephone or mail to engage in twenty-two different stock options transactions on ten different days during that period, constitutes "transacting business" under Section 302(a)(1). This Court agrees. In moving for dismissal, Gilman relies on the long line of cases which have held that mere telephone calls and correspondence sent to New York without more are generally insufficient to meet the "transacting business" element of Section 203(a)(1). See International Customs Assoc., Inc. v. Ford Motor Co., 893 F. Supp. 1251, 1261 (S.D.N.Y. 1995) (collecting cases). Gilman relies in particular on Barington Capital Group, L.P. v. Arsenault, 721 N.Y.S.2d 58 (App.Div. 200 1), and L.F. Rothschild v. McTamney, 452 N.Y.S.2d 630 (App.Div. 1982). In Barington, the defendant, a California domiciliary, made five telephone calls over the course of three days to plaintiff's office in New York to place orders for the purchase of stock. In McTamney, the defendant, a Pennsylvania domiciliary, made several telephone calls to plaintiff's office in New York which resulted in one telephonic purchase order. In both cases, the defendant's activity was insufficient to support an exercise of personal jurisdiction by New York courts.
In the instant case, however, the totality of Gilman's relevant activity in New York far exceeds that described in Barington andMcTamney. His activity is more akin to that described in Credit Lyonnais Sec. (USA) v. Alcantara, 183 F.3d 151 (2d Cir. 1999). In Credit Lyonnais, the plaintiff, a New York brokerage firm, alleged that the defendant maintained an "active account" with plaintiff for five years and agreed to a series of securities transactions over the course of two years that formed the basis of the suit. The Second Circuit held that these facts, if true, would be sufficient to support personal jurisdiction over the defendant under Section 302(a)(1). Id. at 154. In so holding, the Second Circuit cited, as Pfizer does, L.F. Rothschild v. Thompson, 433 N.Y.S.2d 6 (1st Dep't 1980). Credit Lyonnais, 183 F.3d at 154. In Thompson, the Appellate Division held that an out-of-state defendant's involvement in approximately twenty-five securities transactions by telephone and mail over a four-month period was sufficient activity to confer jurisdiction under Section 302(a)(1).Thompson, 433 N.Y.S.2d at 6. Gilman's alleged business activities in New York were at least as purposeful and continuous as those in Credit Lyonnais and Thompson, and, viewed as a totality, make a prima facie showing of the "transacting business" element for personal jurisdiction under Section 302(a)(1).
Gilman argues that his alleged telephone contacts with New York did not flow from any purposeful intent on his part to conduct business in New York, but were rather either "random" or "fortuitous," Agency Rent a Car, 98 F.3d at 32, or otherwise initiated by Pfizer rather than Gilman, and thus irrelevant for purposes of establishing personal jurisdiction under Section 302(a)(1). Specifically, Gilman alleges that in completing his options transactions by phone, he merely dialed a toll-free telephone number which then connected him to a Pfizer representative in New York, who then connected him to brokers at Merrill Lynch and Prudential in New York. Gilman argues that his contact by mail with New York was even more indirect, in that he submitted his stock option exercise forms to the human resources office at the Groton facility (which then forwarded them to New York), notwithstanding the instructions given in the Points of Interest booklets to send the forms directly to the Benefit Financing Department located at Pfizer's New York City Headquarters. Neither of these arguments is persuasive. Pfizer has sufficiently alleged that, through the course of twenty-two transactions over three years, each one involving contact with a Pfizer representative in New York, a broker in New York, or at least one of his New York brokerage accounts, Gilman purposefully and intentionally availed himself of the privilege of conducting business in New York.
Finally, the New York choice of law provision included in the Plan also supports the conclusion that Gilman "transacted business" for purposes of Section 302(a)(1). See CutCo, 806 F.2d at 367. Although a choice of law provision standing alone is not sufficient to confer jurisdiction, it is appropriate to accord some weight to it as a form of contact with New York under Section 302(a)(1). Id. (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)).
"Arising out of" Business Transacted in New York
The second element necessary to establish personal jurisdiction under Section 302(a)(1) requires that the plaintiff's cause of action arise out of the defendant's transaction of business in New York. CPLR § 302(a)(1). A claim arises out of a party's transaction of business in New York if there is "a substantial nexus" between the transaction of business and the cause of action sued upon. See, e.g., Agency Rent A Car, 98 F.3d at 31; McGowan v. Smith, 52 N.Y.2d 268, 272 (1981).
Gilman argues that there is no such nexus between Pfizer's breach of contract claim and his alleged transaction of business in New York. First, he asserts that the alleged breach occurred, if at all, in Massachusetts, when he accepted employment with Millennium and then refused to forfeit to Pfizer his gains from the August and November 2000 options exercises. It is well- settled, however, that to establish personal jurisdiction under Section 203(a)(1), "New York does not require that the acts constituting the alleged breach of contract take place in New York. . . . Rather, having established that defendants transacted business in New York, plaintiffs need show only that the cause of action is sufficiently related to the business transacted that it would not be unfair to deem it to arise out of the transacted business, and to subject the defendants to suit in New York." Hoffritz for Cutlery, Inc. v. Amajac, 763 F.2d 55, 59 (2d Cir. 1985).
Second, and more fundamentally, Gilman argues, apparently as a matter of contract interpretation, that "there is no direct or substantial relationship between Pfizer's contract claim and Dr. Gilman's exercises of his Pfizer stock options in August and November 2000." The relation between the alleged breach and the alleged contract is very simple. "Two elements give rise to a breach of contract claim: (i) a contract between the parties and (ii) an act allegedly in violation of that agreement. Both are necessary elements of the claim; neither is sufficient by itself." Agency Rent A Car, 98 F.3d at 31. In the instant case, the alleged contract was formed when Gilman exercised the options provided to him by the Stock Option Grants. The alleged breach occurred when Gilman refused to forfeit his gains. But for his acceptance of the terms of the Stock Option Grants by his exercise of the options provided under them, the fact that he accepted employment with Millennium and then refused to forfeit his gains would be irrelevant.
2. Due Process
The federal due process jurisdictional inquiry has two parts, the "minimum contacts" inquiry and the "reasonableness" inquiry. Metropolitan Life Ins. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996). The minimum contacts analysis is governed by International Shoe Co. v. Washington, 326 U.S. 310 (1945), and its progeny. "To establish the minimum contacts necessary to justify 'specific' jurisdiction, the plaintiff first must show that his claim arises out of or relates to defendant's contacts with the forum state. The plaintiff must also show that the defendant 'purposefully availed' himself of the privilege of doing business in the forum state and that the defendant could foresee being 'haled into court' there." Kernan v. Hurz-Hastings, Inc., 175 F.3d 236, 242 (2d Cir. 1999) (citation and alterations omitted).
As discussed above, Pfizer has sufficiently alleged that its breach of contract claim arises out of Gilman's contacts with New York. Pfizer has also sufficiently alleged that Gilman has purposefully availed himself of the privilege of doing business in New York and could reasonably have foreseen being haled into court there. Gilman was an employee of a company headquartered in New York who attended meetings at the headquarters at least biannually. He engaged in twenty-two different options transactions through New York brokers using New York brokerage accounts. Given this activity, he could reasonably have foreseen being haled into court in New York.
The second part of the due process personal jurisdiction test is determining the reasonableness of the exercise of jurisdiction. In undertaking this reasonableness analysis, the following factors are considered:
(1) the burden that the exercise of jurisdiction will impose on the defendant; (2) the interests of the forum state in adjudicating the case; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of the controversy; and (5) the shared interest of the states in furthering substantive social policies.Metropolitan Life, 84 F.3d at 568. Gilman has not argued any of these factors. Pfizer has sufficiently alleged that the burden imposed on Gilman by this Court's exercise of jurisdiction would be minimal. Pfizer has also sufficiently alleged that the interests of New York in adjudicating the instant case are strong, given that the case involves securities transactions that occurred in New York pursuant to an alleged agreement with a New York-based company that contained a New York choice of law provision. In sum, the exercise of personal jurisdiction over Gilman in New York will not offend "traditional notions of fair play and substantial justice." International Shoe, 326 U.S. at 316.
Conclusion
For the foregoing reasons, plaintiff's motion to dismiss for lack of personal jurisdiction is denied.
SO ORDERED:
Dated: New York, New York February 13, 2002
__________________________________ DENISE COTE United States District Judge