Bastille Properties, Inc. v. Hometels of Am., Inc., 79 Civ. 0623.

• Decision Date: 22 August 1979
• Docket Number: 79 Civ. 0623.
• Parties: BASTILLE PROPERTIES, INC., Stephen DuBrul, Peter Nitze, Frank Stagen and Elliot Stein, Jr., Plaintiffs, v. HOMETELS OF AMERICA, INC., Robert E. Woolley and Robert E. Woolley d/b/a Hometels of America, Defendants.
• Court: U.S. District Court — Southern District of New York

476 F. Supp. 175

BASTILLE PROPERTIES, INC., Stephen DuBrul, Peter Nitze, Frank Stagen and Elliot Stein, Jr., Plaintiffs, v. HOMETELS OF AMERICA, INC., Robert E. Woolley and Robert E. Woolley d/b/a Hometels of America, Defendants.

79 Civ. 0623.

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

August 22, 1979.

Anderson Russell Kill & Olick, New York City, James P. Heffernan, Andrew P. Brozman, New York City, of counsel, for plaintiffs.

Parker Chapin Flattau & Klimpl, New York City, Stephen F. Harmon, New York City, of counsel, for defendants.

OPINION

ROBERT L. CARTER, District Judge.

This is a breach of contract case in which the individual plaintiffs allege that they were retained to write a financial report for the defendant, Robert Woolley, and his corporation, Hometels of America, Inc. Based on their retention, DuBrul, Nitze, Stagen, and Stein then established Bastille Properties, Inc. for the specific purpose of compiling the analysis. Plaintiffs indeed developed a report, a copy of which has been filed with the court as an in camera exhibit. Depending upon whose version of the facts is believed, defendants either refused to accept it or were never offered it. In any case, plaintiffs now sue for the agreed upon price or for the reasonable value of their labor. Defendants have moved to dismiss for lack of in personam jurisdiction, improper venue, and failure to join an indispensable party. In the alternative, they request transfer to Arizona under 28 U.S.C. § 1404(a). Finally, they claim that Bastille Properties, Inc. must be dismissed because it was misjoined.

In Personam Jurisdiction

Neither the individual defendant nor the corporate defendant is a New York domiciliary. Nonetheless, plaintiffs argue that jurisdiction over the defendants is conferred by the New York long arm statute. They rely upon N.Y.C.P.L.R. § 302(a)(1) (McKinney) which provides for jurisdiction over non-domiciliaries on causes of action arising from their "transaction of any business" in New York. Plaintiffs contend that because Woolley came to New York to negotiate the contract in his individual capacity and in his role as president of Hometels, Inc., both he and the corporation are amenable to suit in New York.

On February 2, February 23, and April 4, 1978, Woolley came to New York to discuss his financial needs with plaintiff Elliot Stein, Jr. at a time when Stein was affiliated with Lehman Bros. Stein left Lehman Bros. at the end of May with the understanding that he could take the Woolley account with him. Thereafter, Woolley came to New York two more times to discuss financing with Stein. At the first meeting, on June 16, 1978, no particular agreement was reached. On July 17 and 18, 1978, Woolley and Stein "shook hands on a partnership." (Aff. of Elliot Stein, Jr., Ex. H). In between these meetings, plaintiffs travelled to Phoenix, Kansas City, and Miami to discuss the prospective deal with Woolley.

Entry into the state by a nonresident corporate officer, for corporate business purposes, will justify jurisdiction only over the corporation. Merkel Assoc., Inc. v. Bellofram Corp., 437 F.Supp. 612, 617 (W.D. N.Y.1977); Yardis Corp. v. Cirami, 76 Misc.2d 793, 351 N.Y.S.2d 586 (Sup.Ct. Nassau Co. 1974). Yet it is clear from the in camera exhibit submitted to the court that the discussions between Woolley and Stein concerned both personal and corporate affairs. Thus the basic issue is whether Woolley's New York negotiations with Stein are transactions of business capable of supporting jurisdiction. If the negotiations are sufficient, jurisdiction exists over both Woolley and Hometels, Inc.

Defendants assert that the negotiations were not substantial enough to support jurisdiction in that they were "preliminary." Although the parties may have "shaken hands on a partnership," Woolley points out that he did not execute the contract until he returned to Arizona. Defendants also contend that the pre-June negotiations can not be considered because Woolley was then negotiating with Lehman Bros. Exclusion of these discussions would leave plaintiffs with only three meetings upon which to ground jurisdiction.

Under Liquid Carriers Corp. v. American Marine Co., 375 F.2d 951, 955-56 (2d Cir. 1967), any contract negotiations evidencing a purposeful invocation of the laws of the forum state are transactions of business for purposes of the long arm statute. It does not matter whether the negotiations are preliminary, or whether the contract is executed in New York, or whether performance is contemplated for New York. Moser v. Boatman, 392 F.Supp. 270, 274 (E.D.N.Y. 1975); ECC Corp. v. Slater Electric, Inc., 336 F.Supp. 148, 152 (E.D.N.Y.1971); George Reiner & Co., Inc. v. Schwartz, 41 N.Y.2d 648, 394 N.Y.S.2d 844, 363 N.E.2d 551 (1977); Longines-Wittnauer Watch Co., Inc. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68, cert. denied sub nom., Estwing Mfg. Co., Inc. v. Singer, 382 U.S. 905, 86 S.Ct. 241, 15 L.Ed.2d 158 (1965); Milton R. Barrie Co., Inc. v. Levine, 54 A.D.2d 642, 387 N.Y.S.2d 627, 628 (1st Dept. 1976). It therefore seems that the application of N.Y.C.P.L.R. § 302(a)(1) does not necessarily depend upon the number of negotiating sessions or their proximity to the ultimate agreement; as long as the discussions "significantly advance the making of a corporate contract of importance," it would appear that the participants had transacted business within the state. ECC v. Slater Electric, Inc., supra, 336 F.Supp. at 152. Although the fact that Woolley and Stein "shook hands on a partnership" in New York on July 18 may not have finalized the contract sued upon, it would indicate that the discussions of July 17 and 18 significantly advanced the making of an important contract. Accordingly, the motion to dismiss for lack of in personam jurisdiction is denied.

Venue

Plaintiffs originally asserted that venue was proper in New York because all the plaintiffs reside in New York. Although Bastille Properties, Inc. is a Delaware corporation, they argued that its doing business in New York rendered it a New York resident. Defendant correctly responded, however, that for venue purposes corporate plaintiffs are residents only of the state of incorporation. Manchester Modes, Inc. v. Schuman, 426 F.2d 629 (2d Cir. 1970). To cure the defect in venue, plaintiffs have submitted a document showing that subsequent to the commencement of this suit, Bastille assigned its claim to Elliot Stein, Jr.

The assignment raised the novel question of whether collusive assignments expressly made for the purpose of creating venue are permissible. In an attempt to avoid this question, the court requested that the parties consider whether venue may nonetheless be proper here because the claim arose in New York. Unfortunately, the supplemental briefs filed on this point also reveal a rather close question. Since the propriety of venue under either rubric is not without doubt, the appropriate course seems to be to consider both possible bases.

A. "Where all plaintiffs reside"

As noted above, all plaintiffs reside in New York if the assignment of the corporation's claim to Elliot Stein, Jr. is given effect despite its execution solely for the purpose of creating venue. The same problem arose with respect to Elliot Stein, Sr., a partner in the Bastille enterprise and Missouri resident who was not included as a plaintiff because his joinder would have destroyed venue in New York. Defendants asked that he nonetheless be joined as an indispensable party since he was a co-obligor on the contract. Plaintiffs again responded with an assignment of claim—this time from Elliot Stein, Sr. to Elliot Stein, Jr.

The question before the court, therefore, is whether the assignments for the purpose of maintaining venue in New York are valid or whether they must be rejected as collusive attempts to invoke the power of this court.

The only case directly on point holds that assignments for the purpose of creating venue are permissible. Dixie Portland Flour Mills, Inc. v. Dixie Feed & Seed Co., 272 F.Supp. 826 (W.D.Tenn.1965), aff'd, 382 F.2d 830 (6th Cir. 1967). The court reasoned that 28 U.S.C. § 1359¹ prohibited only collusive attempts to create jurisdiction and that the residency requirement for venue, unlike the domicile requirement for diversity, was not jurisdictional. The defendants object to this holding on the ground that 28 U.S.C. § 1406(a)² requires a judge to dismiss or to transfer cases brought in a district where venue is improper. They argue that permitting a plaintiff to cure defects in venue by assignment of claim is not one of the alternatives contemplated by § 1406(a).

It seems to me that defendants' reading of § 1406(a) is unduly formalistic. That provision was intended to establish, beyond cavil, that the court in which a case had wrongly been filed nonetheless had the power to transfer it to a district in which venue was proper. Goldlawr, Inc. v. Heiman, 369 U.S. 463, 82 S.Ct. 913, 8 L.Ed.2d 39 (1962); Concession Consultants, Inc. v. Mirisch, 355 F.2d 369, 371 n. 3 (2d Cir. 1966). I am aware of no statutory purpose that would be served by restricting the court's discretion to only the two cited alternatives —dismissal of the entire case or transfer. In fact, courts have on occasion ordered other kinds of dispositions if they appeared to be in the interests of justice. For instance, in Rains v. Cascade Industries, Inc., 258 F.Supp. 974 (S.D.N.Y.1966) (Wyatt, J.) and M. Dean Kaufman, Inc. v. Warnaco, Inc., 299 F.Supp. 722 (D.Conn. 1969), the case against only certain parties was dismissed so as to render venue in the original forum permissible. See also De La Fuente v. I.C.C., 451 F.Supp. 867, 871 (N.D. Ill.1978). The net effect of the assignments at issue here is no different from a court order dismissing the action against the parties who destroy venue.

The defendants are not completely without protection from the possibility of "...