Fashion Two Twenty, Inc. v. Steinberg

• Decision Date: 29 October 1971
• Docket Number: No. 71 C 665.,71 C 665.
• Citation: 339 F. Supp. 836
• Parties: FASHION TWO TWENTY, INC., Plaintiff, v. Rudolph STEINBERG et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

339 F. Supp. 836

FASHION TWO TWENTY, INC., Plaintiff, v. Rudolph STEINBERG et al., Defendants.

No. 71 C 665.

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

October 29, 1971.

COPYRIGHT MATERIAL OMITTED

Paul Weiss, Goldberg, Rifkind, Wharton & Garrison, New York City by Jay Greenfield, New York City, of counsel, for plaintiff.

Shaw, Bernstein, Scheuer, Boyden & Sarnoff, New York City by Frederick B. Boyden, New York City, of counsel, for defendants Marjo, Inc. and individuals.

Nickerson, Kramer, Lowenstein, Nessen & Kamin, New York City by Geoffrey M. Kalmus, New York City, of counsel, for defendants Steinberg and Jericho Laboratories, Inc.

MEMORANDUM OF DECISION AND ORDER

MISHLER, Chief Judge.

Plaintiff moves for a preliminary injunction. The defendants Marjo, Inc., Marvin E. Roseberry, Jo Roseberry, Finelle Industries, Maurice Feigenbaum, Dorothy L. Feigenbaum and Hal Hoham move to dismiss the complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure claiming lack of subject matter jurisdiction and lack of original jurisdiction (as to all claims as they relate to the above-named individual defendants and as to the second and third claims as they relate to the corporate defendants.) Defendants also claim improper venue, and further request that certain matter be stricken from the pleadings as scandalous and improper.

The complaint alleges five claims. The first claim charges a violation of the Sherman Anti-Trust Act and the Clayton Anti-Trust Act (15 U.S.C. §§ 1, 15 and 26).¹

The second claim charges unfair competition.

The third claim is for trade defamation.

The fourth claim is for misappropriation and misuse of trade secrets and the fifth claim is for breach of fiduciary duties by the defendant Steinberg.

Jurisdiction rests on 28 U.S.C. § 1337.² Additionally, jurisdiction for all the claims except the first stated claim is asserted under 28 U.S.C. § 1332(a) (diversity of citizenship).

The defendants Marjo, Inc., Marvin E. Roseberry, Jo Roseberry, Finelle Industries, Maurice Feigenbaum, Dorothy L. Feigenbaum, and Hal Hoham have moved to dismiss the action as against them. They challenge the subject matter jurisdiction of the court over the state claims, the personal jurisdiction over the defendants, both corporate and individual, and the venue of the action. In addition, if relief in the form of dismissal is denied, the above defendants request a transfer of the instant case as it relates to defendants Marvin E. and Jo Roseberry, Hal Hoham, and Marjo, Inc., to the Northern District of Indiana, and to the District of Massachusetts as it relates to defendants Maurice and Dorothy L. Feigenbaum and Finelle Industries.

Subject Matter Jurisdiction

Examination of the complaint reveals five causes of action, only three of which need concern us here, the latter two relating solely to defendants Steinberg and Jericho Laboratories who do not join in the instant motion to dismiss. The first claim arises under the Sherman and Clayton Antitrust Acts, 15 U.S.C. §§ 1, 15 and 26. The first claim is the only federal claim. The second claim realleges all the facts pleaded in the first claim and states a cause of action for unfair competition and fraud. The third claim again realleges all the facts formerly pleaded, on which plaintiff bases a cause of action for trade defamation. These three claims involve all the defendants referred to above.

Defendants urge that the instant case is not one in which the court's power to exercise pendent jurisdiction should be invoked, and that the state claims should be dismissed. Standards for the exercise of pendent jurisdiction were set out by the Supreme Court in United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). In that case, the court stated that a federal court has the power to hear and determine a state claim

"... whenever there is a claim `arising under the Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority ..., United States Constitution, Art. III permits the conclusion that the entire action before the court comprises but one constitutional `case.' The federal claim must have substance sufficient to confer subject matter jurisdiction on the court. Levering & Carrigues Co. v. Morrin, 289 U.S. 103, 53 S.Ct. 549, 77 L.Ed. 1062. The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming the substantiality of the federal issues, there is power in federal courts to hear the whole. 383 U.S. at 725, 86 S.Ct. 1138".

Under the standards of Gibbs, pendent jurisdiction is a proper exercise of the court's powers in the instant case, and the court thus declines to accept defendants' suggestion that it refuse to hear the state claims.

PERSONAL JURISDICTION

Defendants challenge the personal jurisdiction over all moving defendants. As the arguments with respect to the individual and corporate defendants are different and involve different legal provisions, the court's discussion will be so divided.

a. The Corporate Defendants

Marjo, Inc. is a corporation organized under the laws of the State of Indiana, having its principal place of business at Fort Wayne in that State. Windham House, Inc., operating under the name of Finelle Industries, is a Massachusetts corporation, having its principal place of business within that State at Haverhill. Jurisdiction over Marjo, Inc., and Finelle Industries with regard to the first cause of action is conceded by the defendants. They argue, however, that personal jurisdiction over them for the second and third causes of action has not been obtained by plaintiff. They allege that plaintiff has not properly served them with process in accordance with Rule 4 F.R.C.P., and that the state claims must thus be dismissed as against them.

Section 22 of Title 15, U.S.C., permits nationwide service of process on corporations in antitrust actions.

"District in which to sue corporation

Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found."

Service in the instant case was had by serving process on officers of the defendant corporations within their respective states of organization, pursuant to 15 U.S.C. § 22. Whether or not such service is adequate with regard to other causes of action for which such service would not be permitted were they to be brought as separate actions, has been disputed. International Ladies' Garment Workers' Union v. Shields & Co., 209 F.Supp. 145 (S.D.N.Y.1962); Kappus v. Western Hills Oil, Inc., 24 F.R.D. 123 (E.D.Wis. 1959); Townsend Corp. of America v. Davidson, 222 F.Supp. 1 (D.N.J.1963); Stella v. Kaiser, 82 F.Supp. 301 (S.D. N.Y.1948).

Whether or not special service alone is adequate to confer personal jurisdiction over the defendant corporations on this court is a question which need not be decided, as this court finds that service was proper under Rule 4 F.R.C.P. with regard to the state claims standing alone. Under Rule 4(e), service may be made outside the state in which the court sits in two instances: first, whenever a statute of the United States or a court order so permits and second, whenever a statute or rule of court of the state in which the court sits allows it. Section 302 of the New York C.P.L.R. (McKinney 1970) permits New York courts to take personal jurisdiction over out-of-state individuals or corporations (and impliedly to serve them extraterritorially) in four instances, two of which are relevant here. These are (1) the transaction of business within the state, and (2) the commission of a tortious act outside of the state which causes injury to person or property within the state. As this court finds that defendant corporations transacted business in the state within the meaning of the statute, the second category, dealing with tortious acts, does not have to be discussed.

It is quite clear that purchases, the only activity of the defendant corporations in New York, may constitute the basis for the transaction of business within a state. Eastern Pre-Cast Corp. v. Giant Portland Cement Co., 311 F.Supp. 896 (E.D.Pa.1970); Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F.Supp. 252 (E.D.Pa.1968); Crusader Marine Corp. v. Chrysler Corp., 281 F. Supp. 802 (E.D.Mich.1968); United States v. Burlington Industries, Inc., 247 F.Supp. 185 (S.D.N.Y.1965). It is also quite clear that in considering the substantiality of business, the dollar amount is to be viewed from the standpoint of the average businessman, rather than from that of the corporate giant. Green v. United States Chewing Gum Mfg. Co., 224 F.2d 369, 372 (5th Cir. 1955); and Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F.Supp. 252 (E.D.Pa.1968). Defendant corporations, as of the institution of the motion for preliminary injunctive relief, had purchased about $30,000 worth of materials from defendant Jericho Industries in New York, sending their own trucks for pick-ups. This relationship and ensuing sales are continuing, and will probably grow in the future. On this factual basis, the court must find that defendant corporations have been and are transacting business within New York State under the meaning of § 302 New York C.P.L.R. (McKinney 1970). Thus the standards of Rule 4 F.R.C.P. are met, and personal jurisdiction over the corporations must be upheld.

b. The Individual Defendants

There are no separate provisions for the nationwide service of...