Karabu Corp. v. Gitner, 97 Civ. 6452 (SS).

• Decision Date: 03 August 1998
• Docket Number: No. 97 Civ. 6452 (SS).,97 Civ. 6452 (SS).
• Parties: KARABU CORP. and Global Discount Travel Services, LLC, Plaintiffs, v. Gerald L. GITNER, Richard P. Magurno, William F. Compton, David M. Kennedy, Roden A. Brandt, and Michael J. Palumbo, Defendants.
• Court: U.S. District Court — Southern District of New York

16 F.Supp.2d 319

KARABU CORP. and Global Discount Travel Services, LLC, Plaintiffs, v. Gerald L. GITNER, Richard P. Magurno, William F. Compton, David M. Kennedy, Roden A. Brandt, and Michael J. Palumbo, Defendants.

No. 97 Civ. 6452 (SS).

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

August 3, 1998.

Burstein & Fass LLP, Judd Burstein, New York City, Jay Goldberg, P.C., New York City, for Plaintiffs.

O'Sullivan Graev & Karabell, LLP, John M. Delehanty, James L. Burns, New York City, for Defendants.

OPINION AND ORDER

SOTOMAYOR, District Judge.

Defendants Gerald Gitner ("Gitner"), Richard P. Magurno ("Magurno"), William F. Compton ("Compton"), David M. Kennedy ("Kennedy"), Roden A. Brandt ("Brandt"), and Michael J. Palumbo ("Palumbo"), move to dismiss the Complaint on the grounds of lack of personal jurisdiction, res judicata, and failure to state a claim, pursuant to Fed. R.Civ.P. 12(b)(2) and 12(b)(6). For the reasons to be discussed, the Court grants the motion to dismiss for lack of personal jurisdiction.

BACKGROUND

The instant motion asks the Court to examine under what circumstances the senior officers of a large national corporation, who themselves do not live in New York, work in New York, or have personal dealings in New York, can nevertheless be subject to personal jurisdiction in this State based upon their corporate employer's activities in this State. As discussed below, while there are circumstances under which a corporation's New York-related activities could give rise to personal jurisdiction over its out-of-state officers and employees, such circumstances have not been alleged in this case.

Plaintiff Karabu Corporation ("Karabu") is a Delaware corporation with offices located in Mount Kisco, New York. Plaintiff Global Discount Travel Services ("Global") is a Nevada limited liability company. Both Karabu and Global are controlled by Carl Icahn. (Complaint ¶ 11.) The defendants are all senior officers of Trans World Airline ("TWA"), a major airline providing both domestic and international air transportation. Defendant Gitner is TWA's Chief Executive Officer; defendant Magurno is its Senior Vice President; defendant Compton is its Executive Vice President of Operations; defendant Kennedy is its Chief Operating Officer and Acting Executive Vice President; defendant Brandt is its Senior Vice President of Marketing and Planning; and defendant Palumbo is its Chief Financial Officer.

This lawsuit is the latest of a series of disputes between the plaintiffs and TWA over plaintiffs' right to sell discounted TWA airline tickets. Unlike previous lawsuits, however, TWA is not a named party in this litigation. Plaintiffs have instead sued TWA's top management.

The relevant facts are as follows. On or about January 5, 1993, Karabu and TWA entered into a loan agreement in which Karabu lent TWA $200 million. TWA defaulted on its repayment obligations soon after receiving the loan. (Complaint ¶ 1.) Agreeing not to declare a default, on or about June 14, 1995, Karabu entered into another agreement with TWA, extending the maturity date of the loan. (Complaint ¶ 13.) As consideration for that extension, TWA and Karabu also entered into the Karabu Ticket Program Agreement ("the Ticket Agreement"), under which Karabu obtained the right to sell and market discount TWA airline tickets. (Id.) The Ticket Agreement was part of TWA's inducement to obtain forgiveness for its failure to pay the $190 million then due on the $200 million loan. (Complaint ¶ 15.) Under the Ticket Agreement, each ticket sold by Karabu reduces TWA's outstanding loan debt by the cost of that ticket. (Id.) In August 1995, Global executed a joinder agreement and became a party to the Ticket Agreement, thereby acquiring the same rights as Karabu to sell and market discounted TWA airline tickets. (Complaint ¶ 14.) Specifically, the Ticket Agreement provides that Karabu and Global, as parties to the Agreement, may "sell tickets through travel agencies to any `end user.'" (Complaint ¶ 16.)

Plaintiffs contend that shortly after Global joined the Ticket Agreement and began marketing TWA tickets, defendants "directed TWA personnel to ensure that Global would fail in its efforts to sell discount tickets by wrongfully threatening and coercing travel agencies throughout the United States either to refuse to do business with Global, cease doing business with Global or substantially reduce the volume of business that they were doing with Global." (Complaint ¶ 2.) Plaintiffs do not allege when, where or how each of the six named defendants gave such directions to TWA personnel, or what role each defendant played in the matter. According to plaintiffs, this information is "peculiarly within the knowledge of the defendants." (Complaint ¶ 18.) Plaintiffs allege, however, that as a result of defendants' directions, TWA personnel in fact "coerced numerous travel agencies into ending, limiting, or refusing to commence the marketing of the low price, discounted TWA airline tickets offered by Global." (Complaint ¶ 20.) Of the approximately fifty travel agencies allegedly coerced by TWA personnel at defendants' directions, at least five are located in New York. (Id.)

According to plaintiffs, TWA's coercion of travel agencies took many forms, including: threatening to cancel or canceling various travel agencies' appointments to sell TWA tickets if they continued to do business with Global; reinstating the appointments of those travel agencies that agreed not to do business with Global; threatening or commencing lawsuits against travel agencies because they conducted business with Global; threatening to dishonor or dishonoring Global's tickets secured by passengers through travel agencies; threatening to collect additional fares from passengers that secured Global's tickets through travel agencies; and falsely claiming that Global invalidly or illegally sold tickets to non-corporate travelers. (Complaint ¶ 21.) Plaintiffs contend that in directing TWA personnel to take these coercive steps, the six defendants tortiously interfered with Global's prospective economic advantage and are now liable for plaintiffs' lost profits in an amount no less than $100 million. (Complaint ¶¶ 24-25.)

A. Procedural History

As indicated above, at least two other lawsuits stemming from the Ticket Agreement predate this one. In 1996, TWA filed a declaratory judgment and breach of contract action in Missouri state court against Icahn, Global and Karabu, claiming that Global and Karabu were selling discounted TWA airline tickets to the general public in violation of the Ticket Agreement. The dispute centered around the proper interpretation of the term "end user" in the clause providing that Global and Karabu could "sell tickets through travel agencies to any `end user.'" (Complaint ¶ 16.) TWA argued that the term was intended to restrict sales of discounted TWA tickets to business travelers. Karabu and Global, on the other hand, argued that "end users" included all members of the general public, thereby permitting Global and Karabu to sell discounted TWA tickets to leisure travelers as well as business travelers. In their counterclaims against TWA for breach of contract and declaratory and injunctive relief, Global and Karabu alleged that TWA breached the Ticket Agreement by threatening and coercing travel agencies to end or limit their business relationships with Global. (See Ex. F to Delehanty Aff., ¶ 12.) The counterclaims did not mention the participation of any of the defendants named here, either by name or title.

On May 7, 1998, following a bench trial, the Missouri court ruled in favor of Global and Karabu, rejecting TWA's restrictive interpretation of the Ticket Agreement. TWA v. Icahn, No. 96CC-121, slip op. at 6-9 (Mo. Cir.Ct. May 7, 1998). However, because the Missouri Court found that Global and Karabu had not proven damages, it awarded them none. TWA has informed the Court that it is appealing the Missouri court's decision.

While the Missouri suit was still pending, in 1996, Global filed a separate action against TWA in this Court, alleging breach of contract and violations of the Sherman and Lanham Acts. See Global Discount Travel Servs., LLC v. Trans World Airlines, Inc., 960 F.Supp. 701 (S.D.N.Y.1997). In this second action, Global similarly claimed that TWA personnel had coerced independent travel agencies nationwide into ceasing or reducing their business with Global. Many of the allegations that Global's complaint asserted against TWA are identical to the allegations now asserted against the TWA officers. On March 24, 1997, I granted TWA's motion to dismiss Global's complaint, holding that Global's breach of contract claim failed to join Karabu, an indispensable party, and that Global's Sherman and Lanham Act claims failed to state a claim.¹ 960 F.Supp. at 706-08.

Global and Karabu filed the instant action in New York Supreme Court in August 1997, ten months prior to the Missouri court's holding. Defendants removed the action to federal court pursuant to 28 U.S.C. § 1441(a). Defendants now move to dismiss the Complaint on three grounds: (1) that there is no personal jurisdiction over them in New York, (2) that the present action is barred by res judicata by this Court's earlier holding in Global Discount Travel Servs., LLC v. Trans World Airlines, Inc., and (3) that plaintiffs have failed to state a cause of action for tortious interference with prospective economic advantage.

DISCUSSION

I. Personal Jurisdiction

Defendants move under Fed. R.Civ.P. 12(b)(2) to dismiss the Complaint against them for lack of personal jurisdiction. A plaintiff bears the ultimate burden of establishing jurisdiction over a defendant by a preponderance of the evidence. See CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986). However, where, as here, personal jurisdiction is challenged by a Rule 12(b)(2) motion prior to discovery, a plaintiff may defeat the motion "...