Opinion
01 Civ. 7123 (GEL)
January 17, 2001
Rosenman Colin LLP, Bruce M. Sabados, of counsel, New York, NY, pro se.
Peter G. Drakos, Healy Baillie, LLP, New York, N.Y.; Glenn J. Waldman, Waldman Feluren Trigoboff, P.A., Weston, FL, of counsel, for Defendant.
OPINION AND ORDER
Plaintiff Rosenman Colin LLP ("Rosenman") brings this diversity action against Defendant Harvey Sandler ("Sandler") alleging that Sandler breached an obligation to pay approximately $880,000 in fees and expenses for services that Rosenman rendered on behalf of Green Isle Partners, Ltd., S.E. ("Green Isle"). Sandler now moves to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b) on a variety of procedural grounds and for failure to state a claim. For the reasons that follow, Sandler's motion to dismiss will be granted.
BACKGROUND
Rosenman, a New York partnership, is a law firm with its principal place of business in Manhattan. Sandler is a resident and citizen of Florida. (Compl. ¶¶ 1-2, Sandler Aff ¶ 2.) In May 2000, Rosenman was retained by Green Isle, a limited partnership in which Sandler held a controlling interest, to provide advice with respect to Green Isle's investment in a hotel located in Puerto Rico. (Compl. ¶¶ 5, 7.) In a written retainer agreement, Green Isle agreed to compensate Rosenman for those services based on Rosenman's normal hourly rates and to reimburse Rosenman for any disbursements and other charges in connection with those services; that agreement also provided that Rosenman had been engaged to represent only Green Isle, specifically excluding any "Other Party, any interest holder, direct or indirect affiliate, officer, director or other party" related to Green Isle. (Compl. ¶ 5; Rosen Aff. ¶ 11 Exh. A, ¶ 2, 5.) In connection with the Green Isle engagement, Rosenman rendered services to Green Isle and incurred disbursements resulting in bills in excess of $1.2 million, approximately $316,000 of which has been paid. (Compl. ¶ 6.)
On June 18, 2001, four Rosenman partners held a meeting at Rosenman's New York office (the "New York meeting") with four individuals affiliated with Green Isle and other entities controlled by Sandler: Jeffrey Levine, David Ross, Lawrence Rosen, and Sandler himself (Compl. ¶ 7; Sandler Aff. ¶¶ 6-7). At the New York meeting, the subject of Rosenman's unpaid fees and expenses was raised. Rosenman maintains that since the parties agreed at the New York meeting that Green Isle would soon be filing for bankruptcy, one of the Rosenman lawyers present at the meeting requested that those fees and expenses be paid by a non-bankrupt entity. And according to Rosenman, Levine agreed, on Sandler's behalf, that Sandler or a non-bankrupt entity controlled by him would pay those outstanding fees and expenses in exchange for Rosenman's continued performance of legal services to Green Isle and, in particular, its service as special counsel to Green Isle in the bankruptcy proceeding. (Compl. ¶¶ 8-9.) In a conversation with Rosen later that same week, a Rosenman lawyer discussed the issue of fees again, and according to Rosenman, Rosen agreed on Sandler's behalf that those fees would be paid (Compl. ¶ 11.) Sandler, by contrast, maintains that at no point during the New York meeting did anyone discuss payment of Rosenman's fees and expenses, whether in whole or in part, by anyone other than Green Isle itself, and that he never authorized Levine or Rosen to agree, on his behalf, to pay those fees. (Sandler Aff. ¶¶ 9-10.)
Rosenman's outstanding fees and expenses were never paid. (Compl. ¶ 13.) Green Isle filed for bankruptcy on June 25, 2001. (Compl. ¶ 14.) Rosenman asserts that Rosen, on behalf of Sandler, then agreed to settle Rosenman's fee claim against Green Isle for $455,000 — with $300,000 to be paid upon delivery of Rosenman's files to entities controlled by Sandler and $155,000 to be paid within 90 days thereafter — and confirmed that settlement agreement in a subsequent letter. While Rosenman provided its files on July 18, 2001, an attorney on behalf Rosen advised Rosenman that the "matter/offer" set forth in Rosen's letter had been withdrawn. (Compl. ¶¶ 14-15.) Rosenman filed this action on August 1, 2001, asserting claims for (1) breach of the oral contract into which Sandler allegedly entered at the New York meeting; (2) quantum meruit; and (3) as an alternative claim for relief, breach of the settlement agreement into which Rosen, acting as Sandler's agent, allegedly entered after Green Isle had filed for bankruptcy. (Compl. ¶¶ 16-24.)
DISCUSSION
Sandler now moves to dismiss this action on a variety of procedural grounds — lack of personal jurisdiction, improper venue, forum non conveniens — and for failure to state a claim, and in the alternative for a stay pending the deadline to file proofs of claim in the Green Isle bankruptcy. When adjudicating a motion to dismiss, the Court accepts "as true the facts alleged in the complaint," Jackson Nat'l Life Ins. Co. v. Merrill Lynch Co., 32 F.3d 697, 699-700 (2d Cir. 1994), and may grant the motion only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998) (internal citations omitted). The "issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996) (internal quotation marks and citations omitted).
Since the deadline to submit proofs of claim in the Green Isle bankruptcy was November 13, 2001 — curiously, several weeks before this motion even was to have been fully submitted — Sandler's motion in the alternative for a stay pending that deadline may safely be denied as moot. However, given the reasons that Sandler advances in support of that stay request, an additional word or two is in order. Sandier argues that by filing a proof of claim maintaining that Green Isle is liable for the $880,000 in fees and expenses, Rosenman is judicially estopped from asserting here that Sandler is on the hook for that sum of money. This argument is wholly without merit. Rosenman has taken a consistent position before this Court and the Florida Bankruptcy Court — namely, that Sandler agreed to pay Green Isle's debt to Rosenman or cause a non-bankruptcy entity controlled by him to do so. Sabados Aff. Exh. C. In filing its proof of claim in the Green Isle bankruptcy, Rosenman has made perfectly clear that it was seeking to protect its interests in light of Sandler's denial of any independent obligation to pay Rosenman's fees and expenses. Rosenman's course of action is perfectly appropriate given the dispute between the parties.
Moreover, the doctrine of judicial estoppel cannot apply in this case unless and until another court actually has been persuaded to adopt a position inconsistent from the one adopted here. See Bates v. Long Island R.R. Co., 997 F.2d 1028, 1038 (2d Cir. 1993) (in order to assert judicial estoppel, "the prior inconsistent position must have been adopted by the [other] court in some manner"); Long Island Lighting Co. v. Transamerica Delaval, Inc., 646 F. Supp. 1442, 1447 (S.D.N.Y. 1986) ("[S]uccess in the prior proceeding is a necessary part of the doctrine of judicial estoppel."). Filing a proof of claim merely places other interested parties in the bankruptcy on notice — Rosenman still is obligated to show, by preponderance of the evidence, that the claim is valid. See 4 Lawrence P. King et al., Collier on Bankruptcy ¶¶ 501.01[1], 501.02[3][d] (15th ed. 2000). Since Rosenman has not yet persuaded another court to accept a position contrary to the one asserted here, judicial estoppel cannot apply here. Conversely, Rosenman is not judicially estopped from pursuing its claims for fees and expenses against Green Isle in the bankruptcy proceeding simply by virtue of having argued in this action that Sandler independently agreed to assume that obligation, since, as discussed in Part III, infra, Rosenman has failed to persuade this Court actually to accept that argument.
I. Personal Jurisdiction and Venue
Sandler contends that the Court lacks personal jurisdiction over him and that venue is not proper in this District. In order to defeat the defendant's jurisdiction-testing motion at this stage of the litigation, Rosenman need only make a prima facie showing of jurisdiction based on the factual allegations in its complaint. Ball v. Metallurgie Hoboken-Overpelt. SA., 902 F.2d 194, 197 (2d Cir. 1990). Personal jurisdiction over a non-resident defendant typically is determined by the law of the state in which a federal court sits. Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). Venue properly lies in this District so long as "a substantial part of the events or omission giving rise to the claim occurred" here. 28 U.S.C. § 1391(a)(2).
The Court concludes that it properly may exercise personal jurisdiction over Sandler under Rule 302(a)(1) of the New York Civil Practice Law and Rules, which confers long-arm jurisdiction over a non-domiciliary defendant if two conditions are satisfied. First, the nondomiciliary defendant must "transact . . . business within the state," either in person or through an agent. C.P.L.R. 302(a)(1). A non-domiciliary defendant "transacts business" under C.P.L.R. 302(a)(1) when it "purposefully avails itself of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its laws." McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 382(1967). Second, the claim against the non-domiciliary must arise from that business activity. C.P.L.R. 302(a)(1).
Here, the facts alleged by Rosenman in its complaint "present very nearly the `clearest sort of case'" for the exercise of long-arm jurisdiction under C.P.L.R. 302(a)(1): a defendant who was "physically present in New York for negotiation of and agreement in principle to the contract out of which the cause of action" arises. Cross Cross Properties Ltd. v. Everett Allied Co., 664 F. Supp. 713, 716 (S.D.N.Y. 1987) (citation omitted). Rosenman claims breach of a contract that was allegedly formed in this District by Sandler himself, at the New York meeting, and for services performed by Rosenman in this District for Sandler's benefit. Compl. ¶¶ 7-12. These factual allegations amply satisfy Rosenman's prima facie burden to establish personal jurisdiction over the defendant.
The same factual allegations also establish that venue properly lies in this District. Rosenman need only establish that "a substantial part of the events" giving rise to its claims took place in this District. 28 U.S.C. § 1391(a)(2). Having alleged negotiation and formation in this District of the very agreement at issue in this case, and its own performance of legal services in this District in furtherance of that agreement, Rosenman has established that venue is proper in this District. See. e.g., Gianino v. Panacya, Inc., No. 00 Civ. 1584 (SHS), 2000 WL 1224810, at *9 (S.D.N.Y. Aug. 29, 2000) (execution of contract and performance of services within the District establishes proper venue for action alleging breach of that contract); Old Republic Ins. Co. v. Hansa World Cargo Serv., Inc., 51 F. Supp.2d 457, 467 (S.D.N.Y. 1999) (venue is proper based on negotiation and execution of contract in this District).
II. Forum Non Conveniens and 28 U.S.C. § 1404
Sandler also maintains that the action should be dismissed on the ground of forum non conveniens. Of course, since the enactment of 28 U.S.C. § 1404, "it is only when the more convenient forum is in a foreign country — or, perhaps, under rare circumstances, in a state court or a territorial court — that a suit brought in a proper federal venue can be dismissed on grounds of forum non conveniens." Schechter v. Tauck Tours, Inc., 17 F. Supp.2d 255, 258 (S.D.N Y 1998) (internal quotation marks and citation omitted); see also American Dredging Co. v. Miller, 510 U.S. 443, 445 n. 2 (1994) ("[T]he federal doctrine of forum non conveniens has continuing application only in cases where the alternative forum is abroad."). Since Sandler alleges the more convenient forum to be the U.S. District Court for the Southern District of Florida, his forum non conveniens motion is construed as a motion to transfer under 28 U.S.C. § 1404, which permits a district court — in its discretion, and "[f]or the convenience of the parties and witnesses" and "in the interest of justice" — to transfer an action to another federal district in which it could have been brought. A party seeking transfer bears a "heavy burden" to show that transfer is warranted. Old Republic, 51 F. Supp. 2d at 467. Substantial deference must be given to the plaintiff's choice of forum, particularly when, as here, the plaintiff has filed the action in its home state. See In re Warrick, 70 F.3d 736, 741 (2d Cir. 1995); Kelly v. MD Buyline, Inc., 2 F. Supp.2d 420, 441 (S.D.N.Y. 1998). Factors that guide the court's exercise of its discretion include the convenience of witnesses, the convenience of parties, the locus of operative facts, the location of relevant documents and relative ease of access to sources of proof, the availability of process to compel the attendance of unwilling witnesses, the forum's familiarity with governing law, the relative financial means of the parties, docket congestion and trial efficiency, and the interests of justice generally. Prudential Securities, Inc. v. Norcom Development, Inc., No. 97 Civ. 6308 (DC), 1998 WL 397889, at *3 (S.D.N.Y. July 16, 1998).
Upon consideration of these factors, the Court concludes that transfer of this action is not warranted. In support of his motion to transfer, Sandler relies primarily on three factors — inconvenience to defense witnesses, all of whom reside in Florida; the existence of documents and other sources of proof in Florida; and the relative financial means of the parties. However, all three of these factors are neutral, at best, or weigh against transfer. Were this action transferred to Florida, Rosenman certainly would face reciprocal inconveniences with respect to its own witnesses, documents, and other sources of proof. Indeed, the inconveniences faced by Rosenman might well be greater since, as discussed earlier with respect to venue, the locus of operative facts is not in Florida, but in this District, where the oral contract allegedly was created and performed. And while Sandler asserts that Rosenman faces a lower financial burden than he does, since it brings this action pro se. this assertion is misleading. By representing itself in this action, Rosenman certainly incurs the opportunity cost of litigating on its own behalf rather than on behalf of its paying clients, and in any event, Sandler utterly fails to establish his own financial inability to defend this action in New York.
Sandler would be particularly hard-pressed to do so, given that he is the founder and a major shareholder of Sandler Capital Management, a Manhattan-based hedge fund with $1.7 billion in assets under management, and the owner of two nearby residences: an apartment in Manhattan and a beach house on Long Island Sabados Aff., Exh. A, at 3-6.
The remaining factors, which are not in much dispute, either weigh against transfer or at best are neutral. At most, therefore, Sandler has established only that it would more convenient for him if this case were transferred to Florida. Such as a showing is insufficient to overcome the "substantial deference" afforded the plaintiff's choice of forum, since the purpose of 28 U.S.C. § 1404 is not merely to "shift the inconvenience from one party to the other." Kelly, 2 F. Supp. 2d at 440. The Court finds that the interests of justice would not be served by disturbing Rosenman's initial choice of this forum. Sandler's motion to transfer this action to the Southern District of Florida is therefore denied.
III. Failure to State a Claim
Turning to the merits of the claims raised in Rosenman's complaint, Sandler argues that Rosenman's claims for breach of the oral contract formed at the New York meeting and breach of the settlement agreement subsequently entered into by Rosen are barred under New York law by the statute of frauds. New York General Obligations Law § 5-701(a)(2) provides that a "special promise to answer for the debt, default or miscarriage of another" may not be enforced unless it is in writing. This longstanding rule serves an evidentiary purpose, for when a party promises to answer for another's debt, the benefit of that agreement to the promisor may not be so readily apparent. See Martin Roofing, Inc. v. Goldstein, 60 N.Y.2d 262, 265(1983).
In order to enforce an oral promise to answer for another's debt, therefore, the promisee must prove that the oral contract "is supported by a new consideration moving to the promisor and beneficial to him and that the promisor has become in the intention of the parties a principal debtor primarily liable." Id.; see Paul, Weiss, Rifkind, Wharton Garrison v. Westergaard, 75 N.Y.2d 755, 756(1989); Karl Ehmer Forest Hills Corp. v. Gonzalez, 553 N.Y.S.2d 22, 23 (2d Dept. 1990). If these conditions are established, the promise no longer is within the statute of frauds, but instead represents an independent duty of payment, irrespective of the liability of the primary debtor. Martin Roofing, 60 N.Y.2d at 264-65.
Rosenman does not primarily contend that the parties satisfied the requirements of N Y Gen. Oblig. L. § 5-701(a)(2) by entering into any written agreement. Instead, Rosenman maintains that the oral contract into which the parties allegedly entered at the New York meeting and the settlement agreement into which Rosen subsequently entered on Sandler's behalf fall within the exception discussed in Martin Roofing because it represents an independent duty of payment supported by new consideration that is beneficial to Sandler. Rosenman agreed at the New York meeting that it would continue to furnish services for Green Isle and that it would serve as special counsel to Green Isle in the bankruptcy proceeding, and according to Rosenman, these services "[were] intended to and did inure to the benefit of Sandler and one or more of the entities he controlled." Compl. ¶ 10.
As to its alternative claim for relief in Count Three of the complaint, Rosenman argues that its alleged settlement agreement with Sandler complied with the statute of frauds, in that Rosen, acting as Sandler's agent, not only entered that agreement orally but also confirmed it in a subsequent letter, dated July 5, 2001, to Rosenman. Pl. Mem. at 22 n. 7. The argument is without merit. Whatever may have been discussed orally between Rosen and the Rosenman lawyers, Rosen's letter does not state that Sandler or one of his non-bankrupt entities had agreed to pay the $455,000 fee settlement on Green Isle's behalf Rather, that letter provides that the "agreement is to pay $455,000" without identifying who is to pay, and only references Green Isle in its subject line. The writing thus does not embody any obligation on the part of Sandler.
Rosenman objects to the Court's examination of this letter, which was not reproduced in or attached to its complaint. The Court may, however, consider this written instrument in deciding the motion to dismiss, since Rosenman explicitly refers to the letter in its complaint; relies upon that document to establish an essential element of its claim, the existence of a written contract; and had actual notice of its contents.See Yak v. Bank Brussels Lambert, 252 F.3d 127, 130-31 (2d Cir. 2001);see also Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000) (when adjudicating motion to dismiss, court may consider "documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit"); Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991) ("[W]hen a plaintiff chooses not to attach to the complaint or incorporate by reference a [written instrument] upon which it solely relies and which is integral to the complaint, the defendant may produce the [instrument] when attacking the complaint for its failure to state a claim, because plaintiff should not so easily be allowed to escape the consequences of its own failure."); Barnum v. Millbrook Care L.P., 850 F. Supp. 1227, 1232 (S.D.N.Y. 1994) ("In the event that a plaintiff alleges a claim based on a written instrument, as is the case here, the court may consider such an instrument in ruling on a Rule 12(b)(6) motion even if it was not attached to the complaint and made a part thereof under Rule 10(c)."), aff'd without opinion, 43 F.3d 1458 (2d Cir. 1994).
Accepting Rosenman's factual allegations concerning the formation of both the oral contract and the subsequent settlement agreement as true, as we must for the purpose of this motion to dismiss, Rosenman's arguments fail as a matter of law. Rosenman has not met its burden of "showing a consideration moving to defendant and showing that the parties intended . . . that an independent contract was created between them which obligated [Sandler] to satisfy [Green Isle's] debt in any event."Martin Roofing, 60 N.Y.2d at 265. Rosenman attempts to identify such beneficial consideration in its pledge to continue performing future services to Green Isle. Undoubtedly, it was in Sandler's interest, as principal owner of Green Isle, that Rosenman continue to perform legal services for Green Isle. But while Rosenman's promise to do so might well be legal consideration under different circumstances, the statute of frauds requires not simply legal consideration, but consideration that is beneficial to Sandler. And it is clear as a matter of New York law that benefit to Sandler may not be inferred solely from his ownership interest in Green Isle. Martin Roofing, 60 N.Y.2d at 266-67. Rosenman cannot plead around this rule simply by asserting, in conclusory fashion, that the agreement was supported by new consideration that "was intended to and did inure to the benefit of Sandler." Compl. ¶ 9.
Since Rosenman has failed to allege facts in its complaint showing that the alleged oral agreements rested on consideration that is directly beneficial to Sandler, rather than indirectly beneficial to him by virtue of his ownership interest in Green Isle, Counts One and Three will be dismissed for failure to state a claim. Given this disposition of Rosenman's breach of contract claims, its claim for recovery in quantum meruit in Count Two must also be dismissed, for Rosenman cannot circumvent the statute of frauds simply by styling its breach of oral contract claim instead as a claim in quantum meruit. Zeising v. Kelly, 152 F. Supp.2d 335, 345 (S.D N Y 2001); American European Assocs., Inc. v. Trend Galleries, Inc., 641 N.Y.S.2d 835, 836 (1st Dept. 1996) ("Plaintiffs may not utilize a quantum meruit theory of recovery to circumvent the Statute of Frauds.").
CONCLUSION
For the foregoing reasons, Sandler's motions to dismiss for lack of personal jurisdiction, improper venue, and forum non conveniens are DENIED. Sandler's motion to dismiss for failure to state a claim for relief is GRANTED and the complaint is hereby dismissed with prejudice.
SO ORDERED: