Evans v. NexTech AR Solutions Corp.

• Decision Date: 24 August 2021
• Docket Number: 20-CV-3880 (GRB)
• Citation: 556 F.Supp.3d 183
• Parties: Jim EVANS and Dave Franklin, Plaintiffs, v. NEXTECH AR SOLUTIONS CORP., Defendant.
• Court: U.S. District Court — Eastern District of New York

556 F.Supp.3d 183

Jim EVANS and Dave Franklin, Plaintiffs,

v.NEXTECH AR SOLUTIONS CORP., Defendant.

20-CV-3880 (GRB)

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

Signed August 24, 2021

Craig Herrington Kuglar, Law Firm of Craig H. Kuglar, P.C., Brooklyn, NY, for Plaintiffs.

Robert L. Herskovits, Joseph P. Allgor, Herskovits PLLC, New York, NY, for Defendant.

MEMORANDUM OF DECISION & ORDER

GARY R. BROWN, United States District Judge:

In our increasingly globalized economy, many cases present exquisitely complex questions of personal jurisdiction. This is not one of them.

Defendant NexTech AR Solutions Corp. ("defendant" or "NexTech"), a Canadian entity which, until the filing of this action, maintained an executive office for its the CEO in the State of New York (from which he negotiated, in part, the subscription purchase agreement that is the subject of the instant dispute), and which captioned many of its corporate press releases as emanating from "New York and Toronto," contends that it lacked sufficient contacts with New York to be haled into court here. Thus, defendant seeks dismissal under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Docket Entry ("DE") 15. Plaintiffs Jim Evans and Dave Franklin ("plaintiffs"), two investors from Georgia who claim to have been mistreated by NexTech, justifiably dispute this claim. DE 16, 18.

The relevant facts presented on this motion prove overwhelming. In their complaint, plaintiffs allege that NexTech is a Canadian corporation that does business in the U.S. and maintains offices in New York, Texas and California. DE 1 ¶ 3. Plaintiffs further allege that NexTech's CEO "operates the Company" from a Suffolk County, New York office, and that he resides in this district. Id. ¶ 5. Part of the dispute involves an email sent directly from the CEO in the New York office to the plaintiffs concerning the redemption of the warrants subject to the subscription agreement. Id. ¶ 15. The complaint further details actions taken by the CEO beginning in December 2019 that led to the instant litigation. Id. ¶¶ 25-26.

In opposing this motion, plaintiffs have supplemented these allegations with significant factual materials:

a. A February 28, 2018 email from the CEO attaching NexTech marketing materials, a term sheet, and a bio of the CEO, and listing three Suffolk County, NY telephone numbers for the CEO. DE 16-2, Ex. A.

b. A July 8, 2020 Press Release announcing the Company's filing to uplist to NASDAQ captioned "New York, NY – Toronto, ON". DE 16-2, Ex. F.

c. An SEC Registration Statement listing the CEO's name, Suffolk County home address and phone number as the "agent for service in the United States." DE 16-2, Ex. H.

d. A series of press releases touting business developments, private placements, financial results, etc. dated June 18, 2020 and captioned "New York, NY – Toronto, ON". DE 16-2, Ex. I.

e. The transcript of an earnings call in which the CEO states that New York is "where I spend most of my time." DE 16-2, Ex E.

f. Sworn statements that plaintiffs had "numerous conversations" with the CEO of NexTech concerning the disputed investments, during which conversations the CEO represented that he was working for NexTech from New York. DE 16-2, Evans Decl. ¶ 7.

For its part, defendant points to the fact that it is a Canadian company and emphasizes that the subscription agreement related to purchase of Canadian shares in exchange for a transfer of funds to Canada with a non-mandatory forum selection clause. DE 15 at 4. While it describes its connection to New York as "most tenuous," DE 15 at 8, defendant concedes that it maintained the New York office for its CEO and paid rent through August 2020. DE 15-1 at 57.

Judge Bianco has provided a helpful summary of the relevant law:

It is well settled that "[i]n diversity or federal question cases the court must look first to the long-arm statute of the forum state, in this instance, New York." Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). "If the exercise of jurisdiction is appropriate under that statute, the court must then decide whether such exercise comports with the requisites of due process." Id. Thus, the district court should engage in a two-part analysis in resolving personal jurisdiction issues: (1) whether New York law would confer jurisdiction by New York courts over the defendant, and (2) whether the exercise of jurisdiction over the defendant comports with the Due Process Clause of the Fourteenth Amendment. SeeGrand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158, 165 (2d Cir. 2005). "Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith ... legally sufficient allegations of jurisdiction." Ball v. Metallurgie Hoboken–Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990).

Under New York law, there are two bases for personal jurisdiction over out-of-state defendants: (1) general jurisdiction pursuant to N.Y. C.P.L.R. § 301, and (2) long-arm jurisdiction pursuant to N.Y. C.P.L.R. § 302. Here, plaintiff relies on Section 302, arguing that Lin and iTV(HK) have sufficient business contacts with New York to create long-arm, or "specific" jurisdiction. "New York courts evaluating specific jurisdiction .... must decide (1) whether the defendant ‘transacts any business’ in New York and, if so, (2) whether this cause of action ‘aris[es] from’ such a business transaction." Best Van Lines, Inc. v. Walker, 490 F.3d 239, 246 (2d Cir. 2007) ; N.Y. C.P.L.R. § 302(a).

Tianbo Huang v. iTV Media, Inc., 13 F. Supp. 3d 246, 254 (E.D.N.Y. 2014) (finding exercise of jurisdiction over company and CEO in New York appropriate given "his choice to conduct business there"). While plaintiffs rely on both general and specific jurisdiction theories, the Court need not venture further than specific jurisdiction to resolve this motion.

The Second Circuit has held that:

Section 302(a)(1) of the New York state long-arm statute provides that a court may exercise personal jurisdiction over any foreign defendant if that defendant "transacts any business within the state," and the claim arises from those business transactions. Several factors should be considered in determining whether an out-of-state defendant transacts business in New York, including: (i) whether the defendant has an

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