Cantor v. Life Alert, Inc., 85 Civ. 6210 (CBM).

• Decision Date: 23 January 1987
• Docket Number: 85 Civ. 6210 (CBM).
• Citation: 655 F. Supp. 673
• Parties: Richard CANTOR and Amerigard Alarm & Security Corporation, f/k/a Life Alert Systems, Inc., Plaintiffs, v. LIFE ALERT, INC., Jerry Schubert, David Novic, National Alarm Computer Center, Inc., Alert Computer Emergency Co., Defendants.
• Court: U.S. District Court — Southern District of New York

655 F. Supp. 673

Richard CANTOR and Amerigard Alarm & Security Corporation, f/k/a Life Alert Systems, Inc., Plaintiffs, v. LIFE ALERT, INC., Jerry Schubert, David Novic, National Alarm Computer Center, Inc., Alert Computer Emergency Co., Defendants.

85 Civ. 6210 (CBM).

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

January 23, 1987.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Steven Storch, Munves, Tenenhaus & Storch, P.C., New York City, for plaintiffs.

Robert Anderson, Boyle, Vogeler & Haimes, New York City, for defendants.

OPINION

MOTLEY, District Judge.

Defendants Jerry Schubert, Alert Computer Emergency Company ("ACECO"), and National Alarm Computer Center, Inc. ("National") move for an order pursuant to Federal Rules of Civil Procedure 12(b)(2), (3) and (6) dismissing plaintiff's claims for lack of personal jurisdiction, expiration of the applicable statute of limitations, failure to state a claim upon which relief can be granted, and improper venue.

FACTS

This action arises from an unhappy dealership relationship between plaintiffs and defendants, in which plaintiffs purchased a dealership for defendants' medical alarm products. The facts as plaintiffs allege them are as follows.

Plaintiff Richard Cantor learned of the opportunity to become a dealer of defendant Life Alert's medical alarm products from an advertisement defendant placed in the Wall Street Journal. The medical alarms would be installed in private homes and monitored at a central station in California by ACECO, a company related to Life Alert. Life Alert was selling such dealerships nationwide, and the State of New York was a prime marketing area. Cantor met with defendant David Novick, president of Life Alert, in New York to discuss the dealership arrangement, and decided to purchase the dealership rights to a portion of Manhattan. Cantor signed the dealership purchase agreement (the "Purchase Agreement") in California on August 28, 1978.

Under the Purchase Agreement, Life Alert promised to provide extensive support to the holder of the dealership in the form of both goods and services. In return for the dealership rights to a portion of Manhattan, Cantor paid Life Alert $8,970.00. In addition, Cantor paid $1,000.00 for an option to purchase rights to the remainder of Manhattan.

Cantor then learned that Life Alert had purportedly sold the rights to the remainder of Manhattan to another dealer. To protect his interest in the Manhattan market, Cantor exercised his option to purchase exclusive rights to the area on December 19, 1978 and paid Life Alert an additional $11,960.00 for the dealership of the remainder of Manhattan. Cantor then assigned his rights to plaintiff Amerigard Alarm and Security Corporation ("Amerigard").

Life Alert shipped several units to Cantor in New York; however, by early 1979 it had become apparent to Cantor that the support Life Alert had promised would not be forthcoming. Cantor complained to Life Alert about its failure to comply with the Purchase Agreement on numerous occasions between April and August of 1979. Finally, on August 8, 1979, Cantor threatened to take legal action if Life Alert did not repurchase the dealership.

To forestall this action, both Novick and defendant Jerry Schubert, vice president of Life Alert, agreed by telephone to repurchase the dealership over a one-year period. Cantor's lawyers in New York drew up a contract for the repurchase by Life Alert of Cantor's interest. Cantor signed the contract in New York (the "Second Agreement") and sent it to California, where Schubert signed it on behalf of Life Alert. The agreement was executed on August 10, 1979.

The Second Agreement provides for the sale of Cantor's interest to Life Alert for $22,425. The contract also provides for payment over a one-year period as Life Alert sold portions of the Manhattan dealership to others. The portion of the contract dealing with the payment procedure reads as follows:

E. The Company Life Alert will compensate the dealer Cantor in the following manner:

(1) As "territories" are sold, the Company will forward one half of the "territory price", which is one half of $2990 equalling $1495, to the Dealer and retain the remainder for itself. This formula will be used consistently throughout so that whether "territories" are sold individually or in blocks, for each "territory" of 100,000 population sold the Company will forward $1495 to the Dealer.

Schubert Affidavit, Exhibit E.

After this Second Agreement was executed, Cantor wrote on a number of occasions to Schubert and Novick to inquire about progress on the performance of the contract. Finally, on August 6, 1980, Schubert told Cantor that neither he nor Life Alert had any intention of performing under the agreement. Schubert also told Cantor that he had nothing to do with Life Alert, that Cantor's contract was with Novick alone, and that Schubert had no idea where Novick could be located.

Cantor has since learned that the California Secretary of State had effectively shut down Life Alert's operations as of December 19, 1978, months prior to execution of the Second Agreement. See Storch Affidavit, Exhibit B (order extending Desist and Refrain order). Plaintiffs also allege that corporate formalities were not followed among defendant corporations Life Alert, ACECO, and National, nor were they followed in the relationships between the corporations and their owners, who include defendants Novick and Schubert. Life Alert was operated to fund ACECO, whose funds were later funneled into National. Each of these corporations was simply a shell set up for the benefit of Novick and Schubert, according to plaintiffs.

On August 9, 1985, plaintiffs brought the above-captioned action against defendants, claiming both civil RICO violations and common law fraud.

I. Statute of Limitations.

Plaintiffs have disclaimed any action for common law fraud that might arise from the original Purchase Agreement. Plaintiffs' Memorandum in Opposition at 8. Defendants do not contend that plaintiffs' claims under the Second Agreement (dated August 10, 1979) are barred by the statute of limitations. Defendants' Reply Memorandum in Support at 3. Therefore, the court is faced only with the question of whether plaintiffs' RICO claim as it relates to the Purchase Agreement is barred by the applicable statute of limitations.

The RICO statute does not contain a statute of limitations for private civil actions. The length of the limitations period must be determined by referring to state law. Arneil v. Ramsey, 550 F.2d 774 (2d Cir.1977). The parties agree that the applicable limitations period is six years, as provided by N.Y.Civ.Prac.Law and Rules Sections 213(8) and 203(f).

While state law determines the limitations period, federal law determines when the period begins to run. Id. Under federal law, the period begins to run when the plaintiff becomes aware of the fraud or at the time when the plaintiff should have discovered the fraud. Id.; Anisfeld v. Cantor, 631 F.Supp. 1461 (S.D.N.Y.1986); Seawell v. Miller Brewing Co., 576 F.Supp. 424, 427 (M.D.N.C.1983).

Plaintiffs contend that the RICO statute of limitations begins to run from the last racketeering act, relying on U.S. v. Field, 432 F.Supp. 55 (S.D.N.Y.1977) aff'd 578 F.2d 1371 (2d Cir.1978) cert. dismissed 439 U.S. 801, 99 S.Ct. 43, 58 L.Ed.2d 94 (1978). This reliance is misplaced, however, because Field is a criminal RICO case. The rules governing accrual of conspiracy claims in criminal cases have traditionally been different from those governing accrual in civil cases. For example, under 18 U.S.C. Sec. 3282, the statute of limitations does not begin to run on a criminal conspiracy charge until the last overt act in furtherance of the conspiracy is committed. See, e.g., U.S. v. Villa, 470 F.Supp. 315 (S.D.N.Y.1979); U.S. v. Culuso, 461 F.Supp. 128 (S.D.N.Y.1978) aff'd 607 F.2d 999 (2d Cir.1979). By contrast, the settled rule in civil conspiracies is that the statute of limitations begins to run after commission of the first overt act causing damage. See Lowell Wiper Supply Co. v. Helen Shop, Inc., 235 F.Supp. 640, 644 (S.D.N.Y. 1964) (collecting cases).

It is clear from plaintiffs' complaint that plaintiffs were aware of the fraud allegedly perpetrated on them in connection with the Purchase Agreement well before the Second Agreement was executed on August 10, 1979. Since plaintiffs did not file their RICO claim until August 9, 1985, the six-year statute of limitations had run at that time, and plaintiff's RICO claim must be dismissed as it relates to the Purchase Agreement.

II. Personal Jurisdiction.

Defendants also move to dismiss for lack of personal jurisdiction. Since an evidentiary hearing has not been conducted on this point, plaintiff need make only a prima facie showing that this court has personal jurisdiction over the moving defendants. Marine Midland Bank v. Miller, 664 F.2d 899, 904 (2d Cir.1981).

Under Rule 4(e) of the Federal Rules of Civil Procedure, a district court sitting in New York State must apply New York law to determine whether it has personal jurisdiction over a defendant. Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir.1963) (en banc). Plaintiff asserts jurisdiction under three provisions of New Yorks' long-arm statute, N.Y.Civ. Prac.Law and Rules Sections 302(a)(1), 302(a)(2), and 302(a)(3). Since the court finds that plaintiff has made a prima facie showing of jurisdiction over both Schubert and ACECO under 302(a)(3), only this ground for jurisdiction is discussed in detail below. The clear lack of personal jurisdiction over National under any of the grounds plaintiff proposes is discussed at the end of this section.

In relevant part, N.Y.Civ.Prac.Law and Rules Sec. 302(a)(3) grants New York courts personal jurisdiction as follows:

As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal

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