Colson Services Corp. v. Bank of Baltimore, 88 Civ. 6384 (RLC).

• Decision Date: 15 May 1989
• Docket Number: No. 88 Civ. 6384 (RLC).,88 Civ. 6384 (RLC).
• Citation: 712 F. Supp. 28
• Parties: COLSON SERVICES CORP., Plaintiff, v. The BANK OF BALTIMORE, individually, and as Successor in Interest to Metropolitan Federal Savings and Loan Association, Defendants.
• Court: U.S. District Court — Southern District of New York

712 F. Supp. 28

COLSON SERVICES CORP., Plaintiff, v. The BANK OF BALTIMORE, individually, and as Successor in Interest to Metropolitan Federal Savings and Loan Association, Defendants.

No. 88 Civ. 6384 (RLC).

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

May 15, 1989.

Maione & Collins, New York City (Kathryn Dalli, of counsel), for plaintiff.

Sullivan, Donovan, Hanrahan & Silliere, New York City (Thomas J. Bonner, of counsel), Piper & Marbury, Baltimore, Md. (C. Lamar Garren, Dawna M. Cobb, of counsel), for defendants.

OPINION

ROBERT L. CARTER, District Judge.

This case involves an alleged double payment of principal and interest to the purchaser of a participation in a jumbo certificate of deposit (the "CD"). Both parties in the action are successors in interest to the entities that actually engaged in the transaction. The plaintiff, Colson Services Corp. ("Colson"), is the successor in interest to Fidata Securities Management Incorporated ("FSMI"), the company which serviced the transaction on behalf of the seller of the participation. The defendant, The Bank of Baltimore (the "Bank") is the successor in interest to Metropolitan Federal Savings & Loan of Bethesda, Maryland ("Metropolitan"), the purchaser of the participation. Colson alleges that FSMI made duplicate payments of principal and interest to Metropolitan, which the Bank refuses to repay. The Bank has moved for dismissal on the grounds that the court lacks personal jurisdiction over it.

Within constitutional bounds, the reach of the court's personal jurisdiction is determined by New York law. Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir.1963). The burden of proving jurisdiction is on the party asserting it. Lehigh Valley Industries, Inc. v. Birenbaum 527 F.2d 87, 92 (2d Cir.1975). The nature of that burden, however, depends on the "procedural path the district court chooses to follow" in deciding the jurisdictional question, a matter which is left to the court's discretion. Cutco Industries v. Naughton, 806 F.2d 361, 364 (2d Cir.1986). If the court chooses to hold an evidentiary hearing, a preponderance of the evidence rule applies; but if the issue is decided on the basis of written submissions and pleadings, a prima facie showing of personal jurisdiction is all that is required, with the submissions and pleadings being considered in the light most favorable to the party asserting the jurisdictional claim. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985).

The Bank claims that because it is "merely a successor to Metropolitan," Colson "must show that the court would have had personal jurisdiction over Metropolitan in order to prove that it has jurisdiction over The Bank of Baltimore." Memorandum of Law in Support of Motion to Dismiss Complaint (hereinafter "Def. Mem.") at 3 n. 2.

No authority is cited for this proposition. Instead, the Bank cites cases in which the question decided was whether a corporation not found to be present in the forum state could be deemed to have had contacts with the state through the activities of a predecessor corporation. When a corporation ceases to exist, the question often arises whether a successor to the defunct corporation may be held liable for causes of action arising out of the predecessor corporation's activities. This question assumes a jurisdictional form when courts are called on to decide whether personal jurisdiction over a successor corporation can be founded on the activities of its predecessor where the successor corporation is not otherwise subject to jurisdiction. The general rule in such cases is that the successor-in-interest may be subject to jurisdiction based on the activities of its predecessor, but only under certain conditions not at issue in the instant case. See Schenin v. Micro Copper Corp., 272 F.Supp. 523, 526 (S.D.N.Y.1967) (Herlands, J.); Fehl v. S.W. C. Corp., 433 F.Supp. 939, 947 (D.Del. 1977).

The Bank argues that because "courts have used the predecessor as the measuring stick where the successor was not otherwise subject to jurisdiction," the court should "infer that jurisdiction over the predecessor is a prerequisite to jurisdiction over the successor even where the successor is otherwise subject to jurisdiction." Defendant's Supplemental Memorandum of Law in Support of Motion to Dismiss at 4.

In an earlier brief, the Bank goes farther and argues that this inference is required by the "minimum contacts standard" of International Shoe Company v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), and that "no amount of contacts between the Bank of Baltimore and the State of New York can confer jurisdiction on the Court in this case." Defendant's Memorandum of Law in Support of Motion to Dismiss Complaint at 3 n. 2.

This argument confuses two separate standards for finding jurisdiction over foreign defendants, one that applies when the defendant's contacts with New York are merely casual or intermittent, and one that applies when the contacts are systematic and continuous. The difference is explained in McGowan v. Smith, 52 N.Y.2d 268, 437 N.Y.S.2d 643, 645, 419 N.E.2d 321, 323 (1981). If the defendant's contacts with New York are merely casual or intermittent, personal jurisdiction may be asserted under the state's long arm statute, NYCPLR § 302 (McKinney 1972 & Supp. 1989) ("§ 302"), but only if the cause of action arises out of those contacts. In contrast, if a foreign defendant has engaged in a systematic and continuous course of doing business in New York, there is no need to invoke the state's long arm statute. The court may instead rely on its traditional jurisdictional authority over persons found "present" within the state. This authority has been preserved by NYCPLR § 301 ("§ 301"), and when properly invoked over a foreign defendant, "there is no need to establish a connection between the cause of action at issue and the foreign defendant's business activities within the State." McGowan 437 N.Y.S.2d at 645, 419 N.E.2d at 323. See also Longines-Wittnauer Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 261 N.Y.S.2d 8, 13-14, 209 N.E.2d 68, 71-72 (1965) (describing the origins and purpose of § 302); Laufer v. Ostrow, 55 N.Y.2d 305, 309-10, 449 N.Y. S.2d 456, 458, 434 N.E.2d 692, 694 (1982) (defining the "doing business" standard applicable under § 301); Bialek v. Racal-Milgo, Inc., 545 F.Supp. 25, 31, 33 (S.D.N.Y. 1982) (Ward, J.); and Diskin v. Starck, 538 F.Supp. 877, 879-80 (E.D.N.Y.1982) (comparing the jurisdictional reach of §§ 301 and 302).¹

If the Bank satisfies the "doing business" test of § 301, it is not necessary for Colson to show that its cause of action arose from any contact which the Bank had with New York. "Once the foreign defendant is found to be doing business here, it is present and subject to in personam jurisdiction for all purposes, for `jurisdiction does not fail because the cause of action has no relation in its origin to the business here transacted.'" Top Form Mills v. Sociedad Nationale Ind., Etc., 428 F.Supp. 1237, 1242 (S.D.N.Y.1977) (Gagliardi, J.), quoting Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915 (1917). There is no reason why an exception to this rule should be recognized when the cause of action arises out of the activities of a predecessor in interest to the defendant. At least, the Bank offers none.

Thus, there are two ways in which Colson can show that the court has personal jurisdiction over the Bank in this case. Colson can show either that the Bank satisfies the doing business test of § 301, or that the court would have had jurisdiction over Metropolitan for purposes of adjudicating this dispute.²

Colson argues that the court would have had long-arm jurisdiction over Metropolitan, because Metropolitan transacted business in New York in connection with the subject matter of this suit both in its own right and through an agent. See § 302(a)(1).

To assess this claim, the court must examine Metropolitan's contacts with New York, resolving factual disputes in Colson's favor. So construed, the relevant facts are as follows. The CD was issued by County Savings Bank of Santa Barbara, California ("County"). Metropolitan's participation in the CD was solicited by FAIC Securities, Inc. ("FAIC"). Metropolitan effected purchase of its participation in the CD by wiring funds to County's collection and paying agent in New York. A depository receipt evidencing Metropolitan's interest was sent from New York to Metropolitan. Monthly interest payments were wired to Metropolitan from New York, as were the alleged double payments of principal and interest when the CD matured.

These contacts are insufficient to establish long-arm jurisdiction. The only case cited by Colson, Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 308 N.Y. S.2d 337, 256 N.E.2d 506 (1970), is inapposite. The defendant in Parke-Bernet, a California resident, participated in an auction in New York by means of an open telephone line over which he received and transmitted bids. The court concluded that "the defendant, in a very real sense, projected himself into the auction room in order to compete with the other prospective purchasers who were there." Id. at 18, 308 N.Y.S.2d 337, 256 N.E.2d 506.

The same cannot be said of Metropolitan. In response to a broker's solicitation, Metropolitan agreed to buy a participation in a certificate of deposit from a California bank. The California bank's collection and paying agent, Colson's predecessor in interest, happened to be located in New York, and Metropolitan was therefore instructed to send the purchase price for the CD to New York. The wiring of that payment was the sum total of Metropolitan's purposeful activities directed to New York. Much more than that is...