Teachers Ins. & Annuity Ass'n of America v. Butler

• Decision Date: 23 August 1984
• Docket Number: No. 84 Civ. 3211.,84 Civ. 3211.
• Citation: 592 F. Supp. 1097
• Parties: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Plaintiff, v. David L. BUTLER, James L. Grauer, James E. Kassis, and One City Centre Associates, a California Limited Partnership, Defendants.
• Court: U.S. District Court — Southern District of New York

592 F. Supp. 1097

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Plaintiff, v. David L. BUTLER, James L. Grauer, James E. Kassis, and One City Centre Associates, a California Limited Partnership, Defendants.

No. 84 Civ. 3211.

United States District Court, S.D. New York.

August 23, 1984.

Fried, Frank, Harris, Shriver & Jacobson, New York City, for plaintiff; Robert E. Gerber, New York City, Jerry P. Sattin, of counsel.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants; Mark A. Belnick, Colleen McMahon, New York City, Martha A. Geer, of counsel.

OPINION

EDWARD WEINFELD, District Judge.

Plaintiff, Teachers Insurance and Annuity Association of America ("Teachers"), is a New York nonprofit corporation which provides annuities and insurance programs to colleges, independent schools and other educational institutions, and derives income for such programs from long term loans on commercial properties and real estate investments.

The defendant, One City Centre Associates ("OCCA"), is a California limited partnership engaged in the development and construction of real estate in California. It is composed of three general partners, David L. Butler, James E. Kassis, and James L. Grauer, also named as codefendants (collectively "defendants" or "the Butler group").

Plaintiff commenced this action to obtain specific performance of a Committment Letter ("Financing Agreement") pursuant to which Teachers agreed to lend, and OCCA agreed to borrow, $20,000,000, in long term financing of a commercial office building to be constructed by OCCA in Sacramento, California, to replace a temporary outstanding construction loan held by the Bank of America, a California corporation.

The defendants move to dismiss the complaint pursuant to Rule 12(b)(2), Fed.R. Civ.P. for lack of personal jurisdiction over them, or, in the alternative, to transfer the action pursuant to 28 U.S.C., section 1404(a) to the Eastern District of California.

IN PERSONAM JURISDICTION

Since this is a diversity action, the determination of the issue of personal jurisdiction is governed by the law of the State of New York.¹ Limited discovery on the issue was ordered by the Court. The Court has before it the deposition testimony of the primary individuals involved in negotiating the financing agreement, as well as numerous affidavits which present the factual matters pertinent to their jurisdictional positions and the parties' respective contentions. In the absence of a full blown evidentiary hearing on the merits, plaintiff on this motion, through its own affidavits and supporting material, need only make a prima facie case that the Court has jurisdiction over the defendants.² However, such a prima facie showing does not relieve the plaintiff of its burden of establishing in personam jurisdiction upon the trial proper by a fair preponderance of the evidence.³ After a word-by-word reading of the deposition testimony and consideration of the extensive affidavits and voluminous exhibits offered by the parties, the Court finds that plaintiff has sustained its burden on this motion that the defendants are properly before the Court.

The Background Facts

In 1981, David Butler ("Butler"), on behalf of OCCA, decided to develop a commercial building, One City Centre, in Sacramento, California. The proposed project was announced in real estate industry publications. Robert Sonnenblick ("Sonnenblick"), an officer of Sonnenblick-Goldman Corp. ("Sonnenblick-Goldman")⁴ a New York mortgage broker, with its offices at 1251 Avenue of the Americas, telephoned Butler from New York and offered Sonnenblick-Goldman's services in procuring permanent financing for the project. After several conversations between them, OCCA engaged Sonnenblick-Goldman to locate sources of permanent financing. On September 18, 1981, Butler executed the first of a series of written letter agreements with Sonnenblick-Goldman addressed to its office in New York City, which served "to authorize Sonnenblick-Goldman Corp. as our exclusive financing agents" for the proposed building and agreed to a fee of three-quarters of one percent of the total proceeds with power in the Butler group to reject or accept any commitment arranged by Sonnenblick-Goldman Corp.⁵ Thereafter, on November 10, 1981, the Butler group executed a similar letter agreement, but increased Sonnenblick-Goldman's fee to one per cent of any loan obtained.⁶ These authorizations specified no particular proposed lender. Following the execution of these general authorizations, Sonnenblick-Goldman prepared in New York City a bound brochure — a financing package—which contained significant information about the One City Centre project, and which was distributed by Sonnenblick-Goldman to potential lenders in several states. Sonnenblick-Goldman narrowed the group of prospective lenders to three and presented the choices to OCCA with a recommendation that OCCA seek the financing from Teachers. OCCA agreed to the recommendation, and between March and July, 1982, executed three separate letter agreements addressed to William Stern ("Stern"), Executive Vice President of Sonnenblick-Goldman at its office in New York City, which specifically named Teachers as the proposed lender. The agreements authorized Sonnenblick-Goldman Corp. to secure "a financing commitment from Teachers Insurance and Annuity Association," set forth various proposed terms, and warranted that Sonnenblick-Goldman Corp. was the sole broker in the transaction and fixed its fee at one percent of the loan.⁷

Stern was the principal contact with Teachers. He was of considerable experience in securing financing from large investment institutions on behalf of proposed lenders who retained the services of Sonnenblick-Goldman. In January 1982, even before the specific written authorizations had been executed, Stern had been in touch with Teachers and following receipt of the authorizations, carried on negotiations in efforts to obtain the financing as authorized by the Butler group.

Over a period of about eight months, Stern conferred with Daniel Sullivan, Vice President of Teachers, and John Lohr, one of its loan officers, with respect to the amount of the loan, the interest rate, the period of the loan, its prepayment, preleasing requirements, appraisals and a contingent interest in gross rental income described as a "kicker," in an effort to hammer out definitive proposals for acceptance or rejection by OCCA. Their meetings took place in New York City at the offices of Teachers; letters and memoranda were sent from one office to the other in New York City; and telephone conversations between Stern and Sullivan and Lohr were carried on from their respective offices in New York City. As the discussions continued between Stern and the Teachers' representatives, letters embodying the results of the discussions were sent by Teachers from its office in New York City addressed as follows:

One City Centre Associates c/o Sonnenblick-Goldman Corp 1251 Avenue of the Americas New York, New York 10020

As the negotiations progressed and various terms were refined, Stern and Robert Sonnenblick advised the Butler group of these matters to obtain their acceptance or rejection. Finally, after eight months of such meetings, phone calls, and exchanges of correspondence between Sonnenblick-Goldman (principally Stern) and Teachers, Teachers approved a $20,000,000 loan and prepared a Commitment Letter setting forth its details, which OCCA accepted on September 9, 1982. Teachers' notification of its acceptance of the loan was either mailed or hand delivered in New York City to OCCA addressed as indicated above, c/o Sonnenblick-Goldman Corp.

The precise details of the agreement are not necessary for the disposition of this motion. In general, it provides for a $20,000,000 loan at 14-¼% interest repayable over a thirty-five year period in fixed monthly installments. It contains a prepayment privilege after seventeen years upon stipulated conditions. It also provides that Teachers receive a contingent 40% "kicker." Following acceptance of the Commitment Letter, which the parties acknowledged as "a binding agreement between us," plaintiff's counsel, in July 1983, forwarded to OCCA's representatives drafts of documents for execution at the closing scheduled for April 30, 1984 at Sacramento. At the closing, a dispute arose concerning a provision with respect to prepayment during the first seventeen years which the Butler group contended was a material modification of, and contrary to, a prepayment provision that had been agreed upon. As a result, the mortgage financing was never consummated, whereupon Teachers commenced this action.

Discussion

It is undisputed that neither OCCA nor the Butler group transacts business in New York, nor that any of the individual defendants was present in New York in connection with the negotiations that resulted in the loan agreement. However, it is now black letter law that one need not be physically present in New York State as a prerequisite to jurisdiction over a non-resident.⁸ Plaintiff contends that the defendants are subject to in personam jurisdiction because of the activities in New York on their behalf by Sonnenblick-Goldman. It bases its claim on the reach of New York's long arm statute, which, in pertinent part provides:

(a) Acts which are the basis of jurisdiction.

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 ....⁹

Defendants' amenability to jurisdiction under the foregoing provision depends upon whether Sonnenblick-Goldman Corp. was "an agent" whose activities in New York State are attributable to defendants.¹⁰ To constitute an agent for the purposes of the statute, the alleged agent must have engaged in purposeful activities in this State...