Kossoff v. Samsung Co. Ltd.

• Court: New York Supreme Court
• Writing for the Court: ISRAEL RUBIN
• Citation: Kossoff v. Samsung Co. Ltd., 123 Misc.2d 177, 474 N.Y.S.2d 180 (N.Y. Sup. Ct. 1984)
• Decision Date: 27 February 1984
• Parties: Alvin KOSSOFF, Plaintiff, v. SAMSUNG COMPANY LTD., Samsung America, Inc., Y.S. Sunwood, K.H. Sohn and H.J. Hwang, individually, Defendants.

Page 180

474 N.Y.S.2d 180

123 Misc.2d 177

Alvin KOSSOFF, Plaintiff, v. SAMSUNG COMPANY LTD., Samsung America, Inc., Y.S. Sunwood K.H. Sohn and H.J. Hwang, individually, Defendants.

Supreme Court, Special Term New York County, Part I.

Feb. 27, 1984.

Anes, Friedman, Leventhal & Rubin, New York City, for plaintiff; Charles M. Balistreri, New York City, of counsel.

Whitman & Ransom, New York City, for defendants; James S. Morris, New York City, of counsel.

ISRAEL RUBIN, Justice.

This is an action by a director and shareowner of Class B stock in a joint venture with Samsung America, Inc., the owner of all the Class A stock, alleging inter alia that defendants "connived to wreck" the joint venture, organized under the laws of the State of New York as Charisma Le Sac, Inc., and to convert its assets "to their individual benefit and profit." Named as defendants are Samsung America, Inc. ("Samsung America"), Samsung Company, Ltd. ("Samsung Korea") and three directors of Charisma Le Sac ("Charisma"), Y.S. Sunwoo, K.H. Sohn, and H.J. Hwang, individually. Defendants moved to dismiss the complaint for failure to state a cause of action and on the ground that the court lacks personal jurisdiction of all defendants except Samsung America. The jurisdictional issues were referred to Trial Term Part 10 for assignment to hear and report with recommendations. Defendant now moves to set aside, and plaintiff to confirm, the Referee's report which recommended that this court retain jurisdiction of all named defendants. Defendant Samsung Korea further seeks to withdraw its motion to dismiss for lack of in personam jurisdiction.

I. IN PERSONAM JURISDICTION

Having submitted the question of jurisdiction to the court and litigated the issue in its papers, Samsung Korea cannot withdraw its motion to vacate simply because it perceives from the Referee's report that it may sustain a ruling adverse to its interests. Marsh v. Marsh, 63 N.Y.S.2d 42; Wallace v. Ford, 44 Misc.2d 313, 253 N.Y.S.2d 608. The Referee determined that Samsung Korea "retained complete control over its wholly owned New York subsidiary," and the record amply supports the conclusion that "The Samsung Group is a leading business conglomerate operated under the umbrella of common management control" (1979 Annual Report, p. 16). The evidence adduced at the hearing indicates that the New York corporation is listed as a branch of Samsung Korea, that there is a substantial interchange of personnel (including the individual defendants) between the Korean parent, the New York corporation and other subsidiaries, that the earnings of Samsung America are consolidated in the financial statement of Samsung Korea, and that management decisions affecting the joint venture are dictated from the home office. Under these facts, it is clear that Samsung Korea is doing business in New York State and is subject to the jurisdiction of this court (Delagi v. Volkswagen AG, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895; Taca International Airlines, SA v. Rolls Royce of England, Ltd., 15 N.Y.2d 97, 256 N.Y.S.2d 129, 204 N.E.2d 329 (1965)).

In order to subject the individual defendants to the jurisdiction of a New York court, minimum contacts with the State must be established (Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)). Fundamental to this consideration are the relationship of those contacts to the cause of action, and the interest of the State in asserting jurisdiction over the particular defendant (Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977)).

The primary contact of the individual defendants with this jurisdiction is as directors of a New York corporation. The corporation, as an entity under the law, is purely a creature of statute, and all authority for the directors to exercise control over corporate affairs is conferred by the laws of this State. The constitutional prerequisite to jurisdiction is thereby established. As the Court stated in Hanson v. Denckla, "... it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its Laws." (357 U.S. 235, at 253, 78 S.Ct. 1228, at 1240, 2 L.Ed.2d 1283). Having availed themselves of the privilege of conducting the affairs of a corporation under the protection of New York Law, the individual defendants have established sufficient contacts with the State to subject them to the jurisdiction of its courts without offending "traditional notions of fair play and substantial justice" (International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95.)

Having found minimal contacts with the jurisdiction, it is necessary to relate those contacts to the cause of action and to determine whether New York possesses an interest in asserting jurisdiction over the individual defendants (Id. at 319-20, 66 S.Ct. at 159-60). While it is logical to expect a benefit to the corporate defendants from such asserted acts as the transfer of Charisma's assets to Samsung America, failure to honor Charisma's contracts and failure to demand replacement or reimbursement for defective goods sold to Charisma by Samsung America, there is no evidence that the individual defendants derived any personal benefit. Rather, the pleadings indicate that they acted in the interests of their employer, Samsung America.

New York law, however, makes an officer or director liable for misconduct in the management of corporate assets (Business Corporation Law, Section 720). Suit may be brought by a director (among others) to compel the defendant "to account for his official conduct" in the case of:

(A) The neglect of, or failure to perform or other violation of his duties in the management and disposition of corporate assets committed to his charge.

(B) The acquisition by himself, transfer to others, loss or waste of corporate assets due to any neglect of, or failure to perform, or other violation of his duties.

The suit may also seek to set aside or enjoin the unlawful conveyance (B.C.L. Sec. 720(a)(2) and (3)). Under the allegations in the complaint, the individual defendants are answerable for alleged misconduct in transferring the assets of Charisma to defendant Samsung America and for failure to enforce various agreements in favor of Charisma.

The nature of the action is inherently related to the activities of the individual defendants as directors of Charisma. Moreover, New York State has a strong interest in regulating the affairs of corporations to which its law gives substance and in preventing abuse of the corporate form. To this end, the Legislature has provided that individual officers and directors be accountable for misappropriation and mismanagement of corporate assets. It would seem axiomatic that a New York court may exercise personal jurisdiction over a director charged with the misuse of the powers granted him by the laws of this State to systematically mismanage and divert the assets of a corporation organized thereunder. The jurisdictional issue, however, is burdened with further complications beyond the constitutional considerations just outlined.

The individual defendants contend that they are not subject to in personam jurisdiction under New York's long-arm statute which provides, inter alia, that a court may exercise personal jurisdiction over a nondomiciliary who "3. commits a tortious act without the state causing injury to person or property within the state ... if he (i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state ..." (CPLR 302(a)).

Reduced to its essentials, the individual defendants present the following thesis: The Supreme Court decision in Shaffer v. Heitner requires a statutory expression of the State's interest in exercising jurisdiction over a non-resident officer or director of a New York corporation (433 U.S. 186, at 216, 97 S.Ct. 2569, at 2586, 53 L.Ed.2d 683 (1977)). In Platt Corp. v. Platt, 17 N.Y.2d 234, 270 N.Y.S.2d 408, 217 N.E.2d 134 (1966), the New York Court of Appeals held that the out-of-state actions of a director of a New York corporation are insufficient as a basis for the exercise of personal jurisdiction. Under the so-called fiduciary shield doctrine, even in-state activities of directors are insufficient to confer jurisdiction over them for individual wrongs, even where the tort sued upon was committed in New York, Marine Midland Bank, N.A. v. Miller, 664 F.2d 899 (1981). Therefore, the individual defendants submit, this court lacks jurisdiction over their persons.

Given the rather extreme lengths to which this asserted bar to the exercise of jurisdiction is being pressed, a close examination of the underlying rationale is warranted.

In Shaffer, the Court held that the exercise of jurisdiction by a state court is subject to the minimum contacts test of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945); Shaffer v. Heitner, 433 U.S. 186, 215-6, 97 S.Ct. 2569, 2585-6, 53 L.Ed.2d 683. It struck down the state court's exercise of jurisdiction predicated on the defendant's ownership of stock in a Delaware corporation Delaware's sequestration statute deems the situs of the shares to be within the state regardless of the location of the stock certificates (Id. at 213-14, 97 S.Ct. at 2584-85). In dictum, the Court stated that if a state had an interest in exercising jurisdiction over the fiduciaries of a corporation, "we would expect it to have enacted a statute more clearly designed to protect that interest" (Id. at 214-15, 97 S.Ct. at 2585).

Shaffer has been criticized as being "premature and incomplete" in its consideration of a state's interest in regulating corporations organized under its laws and of the...