| Benifits by Design Corp. v Contractor Mgt. Servs., LLC |
| 2010 NY Slip Op 06037 [75 AD3d 826] |
| July 8, 2010 |
| Appellate Division, Third Department |
| Benifits by Design Corporation et al., Appellants, v ContractorManagement Services, LLC, et al., Defendants, and Mortgage Hub, Inc.,Respondent. |
—[*1] Hancock & Estabrook, L.L.P., Syracuse (Matthew D. Matkov of Saltz Matkov, P.C.,Berwyn, Pennsylvania, pro hac vice, of counsel), for respondent.
Garry, J. Appeal from that part of an order of the Supreme Court (Nolan, Jr., J.), enteredSeptember 15, 2009 in Saratoga County, which granted a motion by defendant Mortgage Hub,Inc. to dismiss the complaint against it.
In 2008, defendant Contractor Management Services, LLC (hereinafter CMS), a foreigncorporation doing business in Arizona, and its president, defendant Dennis A. Roccaforte,entered into an agreement in Arizona with plaintiff Benifits by Design Corporation (hereinafterBBD), a New York corporation, and its president, plaintiff Todd Bush, to dissolve their previousbusiness relationship. The agreement provided, among other things, that Roccaforte, actingthrough an escrow agent, would transfer certain stock certificates and other documents to Bushin exchange for a specified sum. Defendant Mortgage Hub, Inc. (hereinafter defendant), aforeign corporation doing business in Arizona, among other places, was retained to act as theescrow agent pursuant to "Joint Escrow Instructions" signed by Bush and Roccaforte. On May 9,2008, CMS delivered certain documents to defendant in Arizona and BBD made a wire transferof [*2]funds to defendant's Arizona escrow account. Defendantshipped the documents to CMS in New York and oversaw a wire transfer of the funds, less its$475 fee, to Roccaforte in Arizona.
In July 2008, plaintiffs commenced this action in Supreme Court, alleging, among otherthings, that CMS and Roccaforte had failed to provide all of the required documents, and thatdefendant had breached a duty by transferring the funds without first ascertaining that they hadfully complied with the agreement. In an amended complaint, plaintiffs asserted that defendantwas a foreign corporation doing business in New York. Defendant removed the action to theUnited States District Court for the Northern District of New York, but the parties then stipulatedto remand the action back to Supreme Court. Defendant moved to dismiss the amendedcomplaint for lack of personal jurisdiction, and plaintiffs moved to dismiss certain counterclaimsasserted by Roccaforte and CMS. The court granted defendant's motion and denied plaintiffs'motion. Plaintiffs now appeal from so much of the order as granted defendant's motion.
Supreme Court properly found that defendant did not submit itself to New York jurisdictionby removing the action to federal court. Defendant's notice of removal explicitly provided thatthe removal did not waive any available defenses or counterclaims. In federal court, defendantmoved to dismiss the complaint for lack of personal jurisdiction; while that motion was pending,the parties remanded the action by a stipulation providing that all pending motions were"disposed of as moot, without prejudice to any rights [d]efendants may have to move against[p]laintiffs' [a]mended [c]omplaint in the Supreme Court, Saratoga County." Upon remand,defendant promptly reasserted its jurisdictional defense. Under these circumstances, we find thatdefendant properly asserted its jurisdictional objection by motion as required by CPLR 3211 (e)(see Matter of Sessa v Board ofAssessors of Town of N. Elba, 46 AD3d 1163, 1164-1165 [2007]).
We disagree with plaintiffs' argument that we are bound by the determination in Farmerv National Life Assn. of Hartford, Conn. (138 NY 265, 270 [1893]) that removalacknowledges the validity of a pending action and therefore constitutes submission to state courtjurisdiction. Farmer was based on the outdated distinction between special and generalappearances (see CPLR 321; Colbert v International Sec. Bur., 79 AD2d 448,459-464 [1981], lv denied 53 NY2d 608 [1981]) and also on the removal procedureapplicable at that time, long since superseded by the CPLR, the Federal Rules of CivilProcedure, and 28 USC § 1446. Under contemporary law, by contrast to that applicable in1893, "one of the very purposes of removal may be to have the federal court dispose of [an]objection" to personal jurisdiction (Siegel, NY Prac § 619 [4th ed]). Moreover, though notcontrolling, we note that removal does not waive the defense of lack of personal jurisdiction infederal court (see Cain v Commercial Publishing Co., 232 US 124, 133-134 [1914];Cantor Fitzgerald, L.P. v Peaslee, 88 F3d 152, 157 n 4 [2d Cir 1996]; Sirius Am. Ins.Co. v SCPIE Indem. Co., 461 F Supp 2d 155, 158 [2006]). We therefore find that defendantdid not waive its objection to personal jurisdiction.
To establish general jurisdiction over defendant, a foreign corporation not licensed to dobusiness in New York (see Business Corporation Law § 304), CPLR 301 requiresplaintiffs to show that defendant "engaged in such a continuous and systematic course of doingbusiness here as to warrant a finding of its presence in this jurisdiction" (Laufer vOstrow, 55 NY2d 305, 309 [1982] [internal quotation marks and citations omitted]). For thefirst time on appeal, plaintiffs assert that defendant is subject to jurisdiction on this ground as itis a subsidiary or department of a corporation registered to do business in New York. Jurisdictionover a parent corporation may be based on the presence of a subsidiary when the parent exercisessuch complete control "that the subsidiary is, in fact, merely a department of the parent"(Delagi v Volkswagenwerk AG of [*3]Wolfsburg,Germany, 29 NY2d 426, 432 [1972]). However, plaintiffs cite no cases supporting thereverse proposition that jurisdiction over a subsidiary may be based on a parent's New Yorkpresence (see National Union Fire Ins. Co. of Pittsburgh v Ideal Mut. Ins. Co., 122 AD2d630, 632 [1986]). This claim is further unpreserved (see Kamp v Fiumera, 69 AD3d 1168, 1170 [2010]), and issupported solely by evidence extraneous to the record, which we will not consider (see Kool-Temp Heating & Cooling vRuzika, 6 AD3d 869, 870 [2004]; Baker v City of Elmira, 271 AD2d 906, 907[2000]).
As to long-arm jurisdiction, pursuant to CPLR 302 (a) (1), personal jurisdiction may beexercised over a foreign entity that "transacts any business within the state or contracts anywhereto supply goods or services in the state" if it is shown that the entity "purposely interjected[itself] into New York's service economy or developed other significant contacts with NewYork" (McLenithan v Bennington Community Health Plan, 223 AD2d 777, 779 [1996],lv dismissed 88 NY2d 1017 [1996]). Here, the actions by which plaintiffs contenddefendant breached a duty took place in Arizona, with the single exception of defendant'sshipment of documents to plaintiffs in New York. While one such transaction may be sufficientif "the defendant's activities here were purposeful and there is a substantial relationship betweenthe transaction and the claim asserted" (Stardust Dance Prods., Ltd. v Cruise Groups Intl., Inc., 63 AD3d1262, 1263-1264 [2009] [citation omitted]), we do not find that the sole action of shipping apackage of documents to New York, without more, demonstrates that defendant " 'avail[ed] itselfof the privilege of conducting activities within the forum [s]tate, thus invoking the benefits andprotections of its laws' " (Fischbarg vDoucet, 9 NY3d 375, 380 [2007], quoting McKee Elec. Co. v Rauland-BorgCorp., 20 NY2d 377, 382 [1967]; compare Executive Life Ltd. v Silverman, 68 AD3d 715, 717[2009]; Kimco Exch. Place Corp. vThomas Benz, Inc., 34 AD3d 433, 434 [2006], lv denied 9 NY3d 803 [2007]).Although plaintiffs further contend that defendant transacted business in New York bymaintaining a Web site that offered information about its products and services and offeredopportunities for customer feedback to New York users along with others, there was nodemonstrated relationship of any kind between the Web site and the escrow transaction.Moreover, plaintiffs' descriptions of the Web site indicate that the site was informative in natureand did not permit purchases, orders, or other direct business transactions by which defendantcould be found to have projected itself into New York for business purposes (see Deutsche Bank Sec., Inc. v MontanaBd. of Invs., 7 NY3d 65, 71 [2006], cert denied 549 US 1095 [2006]; Arouh v Budget Leasing, Inc., 63AD3d 506 [2009]). By merely serving as a conduit for the transfer of documents betweenthe parties, defendant did not "supply goods or services in the state" (CPLR 302 [a] [1];compare J & D Supply Group v Dydacomp Dev. Corp., 306 AD2d 739, 739-740 [2003];Carpino v National Store Fixtures, 275 AD2d 580, 581 [2000], lv denied 95NY2d 769 [2000]).
Further, plaintiffs did not reveal facts to support long-arm jurisdiction based on defendanthaving "commit[ted] a tortious act without the state causing injury to person or property withinthe state" (CPLR 302 [a] [3]). Where, as here, commercial, non-physical losses are alleged, thesitus of the injury is not where the losses are sustained, but "where the critical events associatedwith the dispute took place" (Weiss v Greenberg, Traurig, Askew, Hoffman, Lipoff, Quentel& Wolff, 85 AD2d 861, 862 [1981] [internal quotation marks and citations omitted]; see Polansky v Gelrod, 20 AD3d663, 665 [2005]). The critical events allegedly constituting defendant's breach ofduty—that is, its alleged failure to properly inspect the documents before releasing theescrow funds—took place entirely in Arizona; thus, there was no basis shown supportinglong-arm jurisdiction under CPLR 302 (a) (3).[*4]
Finally, plaintiffs contend that Supreme Court shouldhave exercised its discretion to grant an opportunity for jurisdictional discovery by denyingdefendant's motion to dismiss without prejudice to renewal on the ground that "facts essential tojustify opposition may exist but cannot then be stated" (CPLR 3211 [d]; see Bunkoff Gen.Contrs. v State Auto. Mut. Ins. Co., 296 AD2d 699, 700 [2002]; Herzog v Town ofThompson, 216 AD2d 801, 802 [1995]). Plaintiffs bear the burden of proof in this regard(see Herzog v Town of Thompson, 216 AD2d at 802). Although a prima facie showingof personal jurisdiction is not required, to obtain such relief plaintiffs are required to demonstratethat they "have made a sufficient start, and shown their position not to be frivolous"(Peterson v Spartan Indus., 33 NY2d 463, 467 [1974]). We find that plaintiffs failed tomake this demonstration. Therefore, Supreme Court properly granted defendant's motion todismiss the complaint.
Rose, J.P., Lahtinen, Stein and Egan Jr., JJ., concur. Ordered that the order is affirmed, withcosts.