Opinion
01 Civ. 3580 (RCC)
March 18, 2002
OPINION AND ORDER
Plaintiff Shin Won Corporation ("Shin Won") brings this action against defendant La Salle National Bank, Chicago, n/k/a LaSalle Bank National Association ("LaSalle Bank"), alleging that LaSalle Bank improperly rejected Shin Won's attempts to draw on five letters of credit. LaSalle Bank now moves to dismiss the Complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, or alternatively, to transfer venue to the United States District Court for the Northern District of Illinois pursuant to 28 U.S.C. § 1404 (a). For the reasons set forth below, defendant's motion to dismiss for lack of personal jurisdiction is denied; however, the motion to transfer venue is granted.
I. BACKGROUND
Shin Won is a manufacturing and trading company with its principal place of business in Seoul, Korea. See Complaint ("Compl.") ¶ 1. Defendant LaSalle Bank is a national banking association headquartered in Chicago, Illinois. See id. ¶ 2; see also Affidavit of John J. Brown dated May 2, 2001 ("Brown Aff.") ¶ 3. LaSalle Bank provided financing for the purchases of goods to non-party Montgomery Ward, LLC ("Montgomery Ward") by issuing letters of credit designating certain vendors, including Shin Won, as beneficiaries. Compl. ¶ 3. In the fall of 2000, LaSalle Bank issued five Irrevocable Transferable Documentary Credits (hereinafter, the "L/C's") for Shin Won's benefit, and Shin Won sold and delivered goods to Montgomery Ward. Id. ¶¶ 3, 5, 9, 13, 17, 21. However, in January 2001, LaSalle Bank rejected Shin Won's attempts to draw on the L/C's. Id. ¶¶ 7, 11, 15, 19, 23.
Shin Won filed suit in New York State Supreme Court on March 29, 2001, alleging breach of contract with respect to each of the L/C's, as well as breach of the duty of good faith and fair dealing. LaSalle Bank removed the action to this Court on the basis of both diversity jurisdiction and federal question jurisdiction under 12 U.S.C. § 632. La Salle then filed the instant motion seeking dismissal for lack of personal jurisdiction or, alternatively, for transfer to the Northern District of Illinois. Both parties have submitted affidavits in support of their respective positions but discovery has not yet commenced.
II. DISCUSSION
A. Personal Jurisdiction
When responding to a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant. Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). Where the court relies on pleadings and affidavits, rather than conducting an evidentiary hearing, the plaintiff need only make a prima facie showing that the exercise of jurisdiction is proper. Id. Moreover, the pleadings and affidavits are construed in the light most favorable to the plaintiff and all doubts are resolved in the plaintiff's favor. A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).
In diversity cases, or in federal question cases where the federal statute does not provide for national service of process, the court looks first to the law of the forum state, here New York, to determine whether personal jurisdiction exists. Whitaker v. American Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001); PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997). If the exercise of jurisdiction is appropriate under the applicable New York provisions, then the court must consider whether the requisites of due process are satisfied. Whitaker, 261 F.3d at 208 (citing Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997)).
Although the Complaint itself does not identify any specific provision of the New York Civil Practice Law and Rules ("C.P.L.R.") as the basis for personal jurisdiction, Shin Won relies in its papers upon C.P.L.R. § 301. Under that statute, New York courts may exercise personal jurisdiction over any foreign corporation that is "engaged in such a continuous and systematic course of doing business in New York as to warrant a finding of its presence in the state." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998) (citing Delagi v. Volkswagenwerk A.G. of Wolfsburg. Germany, 29 N.Y.2d 426, 430-31, 328 N.Y.S.2d 653, 278 N.E.2d 895 (1972)). Accordingly, New York law requires that the defendant be present in New York "not occasionally or casually, but with a fair measure of permanence and continuity." J.L.B. Equities, Inc. v. Ocwen Fin. Corp., 131 F. Supp.2d 544, 547 (S.D.N.Y. 2001) (quoting Landoil Res. Corp. v. Alexander Alexander Servs., Inc., 918 F.2d 1039, 1043 (2d Cir. 1990)).
Shin Won does not dispute defendant's averments that LaSalle Bank maintains its principal place of business in Chicago, Illinois, and does not have an office, mailing address or telephone number in New York. Brown Aff. ¶¶ 3, 6; Def. Mem. at 1-2. Shin Won asserts, however, that LaSalle Bank has a demonstrated presence in New York based on: (I) LaSalle Bank's use of its wholly-owned subsidiary, LaSalle Business Credit, Inc. ("LaSalle Credit"), to transact LaSalle Bank's asset-based lending business in New York; (2) LaSalle Bank's interactive website which solicits business in New York and which holds LaSalle Bank out as doing business in New York; (3) LaSalle Bank's direct transaction of substantial business with New York customers; (4) LaSalle Bank's prior acceptance of jurisdiction by New York and its repeated use of the New York courts; and (5) LaSalle Bank's role as an instrumentality of its parent corporation, ABN AMRO, a Netherlands bank with an office in New York. Affidavit of Richard Turyn dated June 29, 2001 ("Turyn Aft") ¶ 47. The Court need not address all of these arguments in favor of jurisdiction. At this juncture of the litigation, Shin Won has made a sufficient start toward establishing jurisdiction based upon the relationship between LaSalle Bank and LaSalle Credit.
Although ordinarily the mere presence of a subsidiary in New York will not subject a foreign corporation to personal jurisdiction here, the exercise of jurisdiction is appropriate where the subsidiary acts as a "mere department" or as an "agent" of its parent. Jazini, 148 F.3d at 184. Here, although the issue is a close one, Shin Won has set forth factual allegations — not mere bare assertions — that tend to support a prima facie showing of jurisdiction under the "mere department" analysis.
In determining whether a subsidiary is a "mere department," the Court considers four factors: (1) common ownership; (2) the subsidiary's financial dependence on the parent corporation; (3) the degree to which the parent interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities; and (4) the degree of control over the marketing and operational policies of the subsidiary exercised by the parent. See id. at 184-185. The overall weighing of the various factors thus necessitates a balancing process, and not every factor need weigh entirely in the plaintiff's favor. ESI. Inc. v. Coastal Corp., 61 F. Supp.2d 35, 51-52 (S.D.N.Y. 1999) (citations omitted).
Defendant's motion to dismiss cannot be granted at this stage of the proceedings because, considering the above factors, Shin Won has made at least a colorable showing of jurisdiction which warrants exploration in discovery. First, common ownership is undisputed — LaSalle Bank is the sole shareholder of LaSalle Credit. Brown Aft ¶ 9. As for financial dependence, Shin Won alleges that the two entities are wholly integrated and points out that LaSalle Bank's consolidated financial statements do not distinguish the Bank's assets and liabilities from those of LaSalle Credit. See Turyn Aff. ¶ 25. Some courts have found this fact to weigh in favor of jurisdiction. See, e.g., Public Adm'r v. Royal Bank of Canada, 19 N.Y.2d 127, 131, 278 N.Y.S.2d 378, 381, 224 N.E.2d 877, 879 (1967) (finding it significant for jurisdictional purposes that the subsidiary's assets and liabilities were carried on the books of the parent corporation). However, consolidated financial statements will be deemed irrelevant in certain situations, such as when the parent is merely complying with the requirements of the securities laws. See, e.g., Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 121 n. 3 (2d Cir. 1984). At this stage of the litigation, however, the record is simply insufficient for the Court to make an informed assessment regarding financial dependence.
Discovery is also warranted with respect to the third and fourth factors of the "mere department" analysis. Although it is normal in a parent-subsidiary relationship for corporate officers to overlap "to an extent" see Jazini, 148 F.3d at 185, here Shin Won alleges, and defendant does not dispute, that there is a mirror image symmetry between the executive personnel of LaSalle Bank and LaSalle Credit. Id. ¶ 14. All of the Bank's Senior Vice Presidents are Senior Vice Presidents of LaSalle Credit. Id. LaSalle Bank Executive Vice Presidents Walter M. Macur and Michael D. Sharkey serve as the Chairman and President/C.E.O. of LaSalle Credit, respectively. Id. Courts have found that where, as here, the officers of the two entities are substantially the same, it suggests that the parent has considerable control over the selection and assignment of its subsidiary's personnel. See, e.g., Obabueki v. International Bus. Mach. Corp., Nos. 99 Civ. 11262, 99 Civ. 12486, 2001 WL 921172, at *5 (S.D.N.Y. Aug. 14, 2001) (finding that the exercise of personal jurisdiction was appropriate under the third factor of the mere department test where all but one of the subsidiary's officers was an officer of the parent); ESI, 61 F. Supp.2d at 54-55 (finding that the "massive overlap" of corporate officers and directors weighed in favor of jurisdiction, even where there was no evidence regarding the failure to observe corporate formalities).
The fourth factor — control over marketing and operational policies — also militates in favor of Shin Won, at least at this point in the litigation. First, Shin Won points out that LaSalle Bank previously conducted the asset-based lending business itself, as a division of the Bank, until forming LaSalle Credit as a separate corporation in 1993. Id. ¶¶ 16-19. Although LaSalle Bank argues that it properly may structure its operations so as to avoid subjecting itself to jurisdiction, the purpose of the "mere department" analysis is to look beyond separate incorporation in order to determine whether there is any real difference between the two entities. Here, Shin Won contends that in reality the management of LaSalle Credit is unchanged from the time when the asset-based lending business was a division of LaSalle Bank. Id. ¶¶ 18-19. Specifically, Shin Won alleges the present "core group" of overlapping executives between LaSalle Bank and LaSalle Credit — Christopher G. Clifford, Robert Corsentino, Bruce Denby and Joseph G. Fudacz — were the same individuals having significant authority ten years ago. Id. ¶ 19. Therefore, Shin Won contends that LaSalle Bank continues to exercise the same control over LaSalle Credit today as it did when LaSalle Credit was still a division of the Bank.
Furthermore, Shin Won argues that LaSalle Bank's control over LaSalle Credit is evident from the fact that LaSalle Bank makes no distinction between the two entities in its annual report and on its website, portraying Credit's business as its own. See Turyn Aff. ¶¶ 8-10; Ex. 1 2. Courts are divided as to whether such statements are significant in the jurisdictional calculus. Compare Dorfman v. Marriott Int'l Hotels, Inc., No. 99 Civ. 10496, 2002 WL 14363, at *8 (S.D.N.Y. Jan. 3, 2002) ("The fact that the parent characterizes its subsidiary as part of the parent's business tends to show that the parent treats the subsidiary as a department.") (citing cases), and Obabueki, 2001 WL 921172 at *5 ("Such operational control may also be presumed from the lack of distinction between the two entities on the [parent's] interactive website and in its annual report, with respect to services . . . that [the subsidiary] purportedly provides."), with J.L.B. Equities, 131 F. Supp. 2d at 550 ("[T]he Court is not persuaded that a failure to distinguish between parent and subsidiary on a web page is sufficient to show that the parent controls the subsidiary's marketing and operational policies."). However, here Shin Won alleges that LaSalle Bank's control is evidenced by more than mere verbiage; for example, Shin Won points out that LaSalle Credit does not have its own website but rather its services are offered only through the Bank's website. Id. ¶ 24.
Finally, accepting plaintiff's allegations as true, due process would not be offended by the exercise of jurisdiction over LaSalle Bank. In addition to LaSalle Bank's connection with this forum through its subsidiary, Shin Won also alleges that LaSalle Bank has a number of independent contacts with New York. LaSalle Bank allegedly solicits New York consumers through its website, which allows those consumers to buy goods online, conduct online banking and apply online for credit cards and loans. See Turyn Aff. ¶ 27 n. 3. Moreover, LaSalle Bank also purportedly has a number of important clients that are based in New York.See id. ¶¶ 28-31 (listing corporations). Finally, LaSalle Bank recently has brought a number of lawsuits in the New York courts. See id. ¶ 35. Therefore, at this point in the litigation, Shin Won has provided sufficient factual allegations to defeat the instant motion to dismiss and to warrant discovery on the issue of personal jurisdiction, although it is unclear whether Shin Won ultimately would be able to meet its burden of proving jurisdiction by a preponderance of the evidence. However, this Court will not have the opportunity to address that issue because, as discussed below, the interest of justice favors transfer to the Northern District of Illinois.
B. Transfer
Section 1404(a) of Title 28 provides that "[f]or the convenience of the 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." 28 U.S.C. § 1404 (a). The burden is on the moving party to make a clear and convincing showing that transfer is proper. See Wechsler v. Macke Int'l Trade. Inc., No. 99 Civ. 5725 (AGS), 1999 WL 1261251, at *2 (S.D.N.Y. Dec. 27, 1999); see also Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir. 1978), cert. denied, 440 U.S. 908 (1979).
The preliminary inquiry is whether the action "might have been brought" in the district to which the transfer is requested. 28 U.S.C. § 1404 (a). There is no doubt that Shin Won could have brought this action in the Northern District of Illinois. Because LaSalle Bank maintains its principal place of business there see Brown Aff. ¶ 3, both the personal jurisdiction and venue requirements would be met.
This Court then must assess whether transfer will promote convenience and fairness. See Orb Factory Ltd. v. Design Sci. Toys, Ltd., 6 F. Supp.2d 203, 208 (S.D.N.Y. 1998) (citing Wilshire Credit Corp. v. Barrett Capital Mgmt. Corp., 976 F. Supp. 174, 180 (W.D.N.Y. 1997)). Courts generally look to the following factors: (1) the convenience of the witnesses; (2) the location of the relevant documents and the relative ease of access to sources of proof; (3) the convenience of the parties; (4) the locus of the operative facts; (5) the availability of process to compel attendance of unwilling witnesses; (6) the relative means of the parties; (7) the forum's familiarity with governing law; (8) the weight accorded to the plaintiff's choice of forum; and (9) the trial efficiency and the interests of justice based on the circumstances. See id.; see also Intria Corp. v. Intira Corp., No. 00 Civ. 7198 (AGS), 2000 WL 1745043, at *2 (S.D.N.Y. Nov. 27, 2000).
After weighing the above considerations, the Court concludes that transfer clearly is warranted here. First, it is undisputed that all of the operative events occurred in Chicago — the L/C's were issued in Chicago, Shin Won presented its documents to LaSalle Bank in Chicago in its attempt to draw on the L/C's, and LaSalle Bank dishonored the draws in Chicago. Moreover, LaSalle Bank's witnesses and documents are located there. See Brown Aff. ¶¶ 13-14; see also Affidavit of Graham K. Bromley dated July 27, 2001 ("Bromley Aff.") ¶¶ 5-6. For example, Mr. Sam Jebamony, the person most directly responsible for dealing with the Shin Won L/C's on behalf of LaSalle, resides in the Chicago area. See Bromley Aff. ¶ 5. On the other hand, it is undisputed that no documents or witnesses are located in New York. Even more significantly, none of the events at issue occurred here.
Shin Won contends that "one or another" of its employees frequently travels to New York on business. Affidavit of Jae Jin Park dated June 29, 2001 ("Park Aff.") ¶ 4. Notably, though, Shin Won does not identify these persons, or even state whether they would be called as witnesses to the instant dispute.
Moreover, Shin Won is a Korean corporation, not a New York resident. The deference accorded to plaintiff's choice of forum is diminished where the plaintiff is a foreign entity and the operative events occurred outside this district. See, e.g., Eisenberg v. Wachovia Bank, N.A., No. 00 Civ. 7910, 2001 WL 30452, at *4 (S.D.N.Y. Jan. 11, 2001) ("[W]here, as here, a plaintiff is a foreigner and the forum is simply his preferred venue, the weight accorded his choice of forum is generally diminished."); Hernandez v. Graebel Van Lines, 761 F. Supp. 983, 990 (E.D.N.Y. 1991) ("[W]here the transactions or facts giving rise to the action have no material relation or significant connection to the plaintiff's chosen forum, then the plaintiff's choice is not accorded the same `great weight' and in fact is given reduced significance.") (citations omitted).
Shin Won argues that it has a subsidiary in New York and that its attorneys are located here. See Park Aff. ¶¶ 2-5. However, the presence of the subsidiary is largely irrelevant — the subsidiary acts only as Shin Won's marketing liaison with the New York fashion market and has no involvement whatsoever in the L/C dispute. Id. ¶ 3. Nor is counsel's presence relevant to a transfer motion. See Invivo Research, Inc. v. Magnetic Resonance Equip. Corp., 119 F. Supp.2d 433, 438 (S.D.N.Y. 2001) ("[T]he convenience of counsel is not an appropriate factor to consider on a motion to transfer.").
It is apparent that this dispute lacks any relevant nexus with New York. Convenience and fairness concerns clearly favor transfer to the Northern District of Illinois. Discovery has not yet commenced and there are no efficiency benefits to be had by keeping the action in this Court.
III. CONCLUSION
For the foregoing reasons, defendant's motion to dismiss for lack of personal jurisdiction is DENTED and the motion to transfer is GRANTED. It is hereby ordered that this case be transferred in its entirety to the United States District Court for the Northern District of Illinois.
SO ORDERED.