Kahn Lucas Lancaster, Inc. v. Lark Intern. Ltd.

• Decision Date: 24 February 1997
• Docket Number: No. 95 CIV. 10506 (DLC).,95 CIV. 10506 (DLC).
• Parties: KAHN LUCAS LANCASTER, INC., Plaintiff, v. LARK INTERNATIONAL LTD., Defendant.
• Court: U.S. District Court — Southern District of New York

956 F.Supp. 1131

KAHN LUCAS LANCASTER, INC., Plaintiff, v. LARK INTERNATIONAL LTD., Defendant.

No. 95 CIV. 10506 (DLC).

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

February 24, 1997.

Andrew L. Goodman, Joseph P. Tucker, Rosner Bresler Goodman & Bucholz, New York City, for Plaintiff.

Peter J. Schmerge, Deborah K. Squiers, Eaton & Van Winkle, New York City, for Defendant.

OPINION & ORDER

COTE, District Judge:

On December 13, 1995, Kahn Lucas Lancaster, Inc. ("Kahn Lucas"), brought this diversity action against Lark International Ltd. ("Lark") based on two purchase orders whereby Lark agreed to provide Kahn Lucas with agency services with respect to Kahn Lucas's purchase of clothing manufactured in the Philippines for sale to Sears in the United States. Kahn Lucas is suing Lark for breach of contract, breach of warranties, negligence in performing its duties, and breach of fiduciary duty. Lark brings this motion to dismiss pursuant to Rule 12(b)(2) and (6), Fed.R.Civ.P., for lack of personal jurisdiction. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.

Background

Plaintiff's Complaint

According to the Complaint, Kahn Lucas is a New York corporation which is in the children's clothing business. Lark is a Hong Kong corporation which acts as an agent in Asia for United States clothing buyers. In early 1995, Kahn Lucas issued two purchase orders to Lark for finished fleece garments to be imported from the Philippines and sold to Sears in the Fall and Winter of 1995. The sales to Sears were firm orders from Sears for retail sale, and the purchase orders explicitly noted that the goods were intended for sale to Sears.

According to the Complaint, in performing its agency services, Lark sub-contracted with Philippine manufactures for the production of the garments, arranged for the shipment of the goods to the United States, and inspected the goods prior to shipment. Ultimately there were several problems with the goods. Some of the garments were defective, some of the shipments contained the wrong colors or sizes, and many of the goods were never delivered or were delivered late.

Because of these problems, Kahn Lucas could not fully meet Sears' order, and Sears charged Kahn Lucas late fees and other costs. Kahn Lucas argues that these difficulties also led to its losing the opportunity to deal with Sears for the 1996 season and may have jeopardized its overall relationship with Sears.

Jurisdictional Facts

Through discovery conducted in connection with this motion, the following facts have been developed. As noted above, Lark is a Hong Kong corporation, with registered offices in Hong Kong, and affiliated offices in other cities in Asia. Lark does not have an office in New York, is not registered to do business in New York, and has no employees in New York.

Lark has been a buying agent for Kahn Lucas since 1988, and receives a seven percent commission based on the seller's price. Lark is not a seller or manufacturer. Lark conducts its business from Asia, and that is where it was originally contacted by Kahn Lucas. Lark communicates with Kahn Lucas in New York through telephone, facsimile, and mail, and in face-to-face meetings when Kahn Lucas personnel travel to Asia. Kahn Lucas sent its orders for clothing to Lark's Hong Kong offices; no contracts were received or signed by Lark in New York.

James Shea ("Shea"), Lark's General Merchandise Manager, met with Kahn Lucas in New York in December 1995. Shea reports directly to Lark's owner. Lark believed that the meeting was to discuss Kahn Lucas' claims against the Philippine manufacturers for the defective goods shipped to Sears. Instead, Shea was served with the Summons and Complaint in this action. This was the last of approximately six meetings in New York between Kahn Lucas and Lark personnel between 1993 and 1995. In the prior meetings the representatives of the two companies discussed generally how their business was doing, "what we can do to go forward," clothing lines that would be produced for that particular season, prices and current volume, and Lark's interest in assisting Kahn Lucas with its recently-acquired license from Disney for Lion King-related products. In these meetings, however, Shea and Kahn Lucas did not negotiate any particular purchase. Thus, they did not discuss the commission structure, the volume of lines which Kahn Lucas was seeking to purchase in the coming season, or freight costs. The purchase orders on which this action is based contained a New York arbitration clause and a New York choice of law clause.

In 1995, Lark acted as agent for six New York companies in addition to Kahn Lucas, which together accounted for purchases of more than $1 million. Lark's income from shipping goods into New York on behalf of these six companies, based on an average seven percent commission, was $65,727.56. Lark employees visited these companies in addition to visiting Kahn Lucas when they were in New York. Lark is a plaintiff in an unrelated lawsuit in the Southern District of New York.

Discussion

It is well established that on a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, "the plaintiff bears the burden of showing that the court has jurisdiction over the defendant." Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir.), cert. denied, ___ U.S. ___, 117 S.Ct. 508, 136 L.Ed.2d 398 (1996). The plaintiff's burden depends on the procedural posture of the litigation. Where there has been no discovery, "a plaintiff may defeat a motion to dismiss based on legally sufficient allegations of jurisdiction." Id. But where there has been discovery regarding personal jurisdiction, the plaintiff's burden is to make a prima facie showing which includes an averment of facts that, if given credit by the ultimate trier of fact, would be sufficient to establish jurisdiction over the defendant. Id. at 567.

In a diversity case, this Court must apply the personal jurisdiction law of the forum state. Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir.1996); Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d Cir.1963) (en banc). To determine whether personal jurisdiction exists, this Court must engage in a two-part inquiry. First, there must be a basis for personal jurisdiction under New York state law. Second, the exercise of jurisdiction must comport with the requirements of due process. See Metropolitan Life Ins., 84 F.3d at 567.

Because it is clear, and defendants appear to concede, that Lark has sufficient contacts with New York to satisfy the "minimum contacts" test of due process, see International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), the only issue is whether there is a basis under New York law for this Court to exercise personal jurisdiction over Lark.¹ Plaintiff points to three such bases.

1. Long-Arm Jurisdiction, CPLR § 302(a)(1)

Plaintiff argues that this Court has longarm jurisdiction over Lark pursuant to New York's Civil Practice Law and Rules ("CPLR") § 302(a)(1) (McKinney 1990), which states that a court may exercise personal jurisdiction over an out-of-state defendant if that defendant "transacts any business within the state" and if the cause of action "arises from" those contacts. See Cut-Co Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986).

Taking the second prong of the Section 302(a)(1) test first, the "arising under" requirement, a claim arises out of a party's transaction of business in New York if there is "a substantial nexus" between the transaction of business and the cause of action sued upon. See, e.g., Agency Rent A Car, 98 F.3d at 31; McGowan v. Smith, 52 N.Y.2d 268, 437 N.Y.S.2d 643, 645, 419 N.E.2d 321, 322-23 (1981). The parties do not dispute that this lawsuit arises out of their agency relationship. The issue in contention is whether Lark was sufficiently transacting business so as to be subject to New York jurisdiction.

In order to meet the "transacting business" element, a plaintiff must show that the defendant "purposefully avail[ed] [itself] of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its laws." CutCo Indus., 806 F.2d at 365 (citation and quotation marks omitted). Courts should examine the totality of defendant's contacts with New York, rather than focus on each isolated event. Id.

Although a single purposeful act in New York can be sufficient to support jurisdiction, see Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 261 N.Y.S.2d 8, 18, 209 N.E.2d 68, 75, cert. denied, 382 U.S. 905, 86 S.Ct. 241, 15 L.Ed.2d 158 (1965), the nature and quality of the New York contacts must be examined to determine their significance. George Reiner & Co. v. Schwartz, 41 N.Y.2d 648, 394 N.Y.S.2d 844, 847, 363 N.E.2d 551, 553-54 (1977). In judging whether there are sufficient contacts, the New York Court of Appeals has cautioned that

we should not forget that defendants, as a rule, should be subject to suit where they are normally found, that is, at their preeminent headquarters or where they conduct substantial general business activities.

McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 283 N.Y.S.2d 34, 38, 229 N.E.2d 604, 607 (1967). Thus, New York's highest court eschewed an interpretation of Section 302 that would find jurisdiction over "every corporation whose officers or sales personnel happen to pass the time of day with a New York customer in New York...." Id. at 37, 229 N.E.2d at 607. Consequently, contacts through telephone calls, the mail, and by facsimile, are usually insufficient to confer personal jurisdiction. See International Customs Assoc., Inc. v. Ford Motor Co., 893 F.Supp. 1251, 1261 (S.D.N.Y.1995) (collecting cases). Three cases from the New York Court of Appeals illustrate these principles.

In George Reiner & Co. v. Schwartz, the defendant, a Massachusetts...