Mystic Days, LLC v. Chhatrala Mystic, LLC
| Decision Date | 17 February 2021 |
| Docket Number | No. 3:19-cv-01953 (JAM),3:19-cv-01953 (JAM) |
| Parties | MYSTIC DAYS, LLC, Plaintiff, v. CHHATRALA MYSTIC, LLC, et al., Defendants. |
| Court | U.S. District Court — District of Connecticut |
This lawsuit involves claims arising from the sale of a Days Inn franchise hotel in Mystic, Connecticut. According to the complaint, one of the defendants—Shivam Patel—fraudulently caused the hotel to be advertised for sale by means of a false representation that the hotel was undergoing remodeling and renovation.
Patel lives in California, and he has moved to dismiss for lack of personal jurisdiction. He claims that the courts of Connecticut have no jurisdiction over him because he never came to Connecticut for any of his business dealings with respect to the hotel and also because any business dealings he engaged in with respect to the hotel were in a corporate capacity rather than a personal capacity.
I will deny his motion. First, I conclude that Patel is subject to service of process under Connecticut's long-arm jurisdiction statute. See Conn. Gen. Stat. § 52-59b(a). Even if Patel never journeyed to Connecticut, the allegations and evidence of his involvement in the management and alleged fraudulent sale of a hotel property in Connecticut is enough to qualify this action as one that involves a claim arising from the transaction of business in Connecticut. See Conn. Gen. Stat. § 52-59b(a)(1). Although Patel invokes the "fiduciary shield" doctrine to argue that he cannot be personally subject to suit for actions that he took on behalf of his company, I conclude that Connecticut law does not recognize the fiduciary shield doctrine as a limitation on the scope of its long-arm jurisdiction statute.
Second, I conclude that the exercise of jurisdiction over Patel would not violate constitutional due process. Having allegedly enmeshed himself in the management and sale of a hotel property that is located in Connecticut, Patel could reasonably anticipate that he would be subject to the jurisdiction of Connecticut courts for causes of action arising from this activity involving real property in Connecticut.
The plaintiff is a limited liability company named Mystic Days, LLC ("Mystic"). The three defendants include two limited liability companies—Chhatrala Mystic, LLC ("Chhatrala") and Kherva, LLC ("Kherva")—as well as Patel, who is alleged to be a member of both Chhatrala and Kherva.
According to the third amended complaint, Mystic bought the hotel property from Chhatrala in April 2018 for $5.8 million. Doc. #17 at 4. The complaint alleges in relevant part that Patel "at all times represented to [Mystic] that the hotel was under renovations" and that Mystic relied on these representations when buying the hotel. Ibid. But Mystic later learned that the hotel was not under renovation and required renovations which would cost Mystic about $650,000. Id. at 5. Patel allegedly "caused the hotel to be advertised for sale as a 'current remodel and renovation underway,'" advertising representations that he knew at the time to be false. Ibid.
Patel now moves to dismiss for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2). He argues that he did not have sufficient contacts with Connecticut to permit a court to exercise jurisdiction over him in Connecticut.
Rule 12(b)(2) of the Federal Rules of Civil Procedure allows a defendant to move to dismiss for lack of personal jurisdiction. As the Second Circuit has explained, there are generally three reasons why a federal court may lack personal jurisdiction over any particular defendant. First, the defendant may not have been served with process in technical compliance with the procedures required for serving a summons and complaint. Second, if the defendant lives outside the State where the federal court is located, he may not be subject under state law to the "long-arm" jurisdiction of the courts of that State. Third, the exercise of jurisdiction over a defendant who lives outside the State where a court is located may not comport with constitutional principles of fairness and due process. See generally U.S. Bank Nat'l Ass'n v. Bank of Am. N.A., 916 F.3d 143, 149 (2d Cir. 2019); Reich v. Lopez, 858 F.3d 55, 63 (2d Cir. 2017); Waldman v. Palestine Liberation Org., 835 F.3d 317, 327 (2d Cir. 2016).
Here, Patel does not meaningfully dispute the technical validity of the manner in which he was served with process.1 Instead, he argues that he was not subject to service of process under Connecticut's long-arm statute and that it would otherwise violate constitutional due process if he were required to defend against this lawsuit in Connecticut. I will consider these two arguments in turn.
Connecticut long-arm statute
A long-arm statute allows the courts of one State to exercise jurisdiction over individuals or entities that are residents or citizens of another State. Although long-arm statutes may be creations of state law, they matter to federal courts because the Federal Rules of Civil Procedure generally condition the "establish[ing of] personal jurisdiction over a defendant" on whether the defendant "is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located." Fed. R. Civ. P. 4(k)(1)(A).
Among other grounds, Connecticut's long-arm statute allows for the exercise of jurisdiction "[a]s to a cause of action arising from" the act of a "nonresident individual ... who in person or through an agent ... [t]ransacts any business within the state." Conn. Gen. Stat. § 52-59b(a)(1). Thus, as the Connecticut Supreme Court has noted, "a court possesses personal jurisdiction over a nonresident individual with respect to a cause of action arising from any business transacted in this state by that individual." Ryan v. Cerullo, 282 Conn. 109, 118 (2007). The transaction of business for purposes of the long-arm statute may "embrace a single purposeful business transaction," and even "a nonresident individual who has not entered this state physically nevertheless may be subject to jurisdiction in this state under § 52-59b(a)(1) if that individual has invoked the benefits and protection of Connecticut's laws by virtue of his or her purposeful Connecticut related activity." Id. at 119, 120 (internal citations omitted).
Although Patel insists that he never came to Connecticut for any reason related to the Days Inn in Mystic, the record before me sufficiently shows that—regardless whether he ever entered Connecticut—the fraud claim against him arises from his transacting of business here in Connecticut. This record includes numerous emails during the course of negotiations to sell the hotel in which he described his active participation in the management of the Days Inn. Patelstated in one email that he has been "actively managing the subject property since August 2013." Doc. #31-1 at 23. In another email, Patel listed the Days Inn in Mystic as one of the properties he "owns and manages." Id. at 28. And in yet another email that was sent in response to a request for information about "[h]ow active are you involved in the property," Patel listed numerous "responsibilities" that he undertakes from California, including bookkeeping, tax preparation, payroll, occupancy tax, human resources, budgeting, and renovation management for the hotel building. Id. at 29.2
The record further shows that Patel played an active role in the negotiations to sell the hotel. He entered into sales negotiations on behalf of the selling entity beginning in December 2017 with Christopher Capozzoli, who was acting on behalf of the buying entity. Doc. #31-1 at 2 (¶ 9). The negotiations involving Patel extended for several months. Id. at 2-7. As relevant to the claim that Patel engaged in fraud with respect to misrepresenting the hotel's renovations, among the documents Patel provided to Capozzoli was a list of renovations and costs. Id. at 3 (¶ 14) & 18.
All in all, the record shows that Patel was transacting business in Connecticut by reason of his active management and effort to sell a hotel property that was located in Connecticut. Indeed, a critical fact here is that both the claim and business activity at issue involved the sale of real property in Connecticut. Whenever parties negotiate the sale of real property that is located in Connecticut, they inevitably count on the protection of Connecticut law with respect to the transaction in a manner that qualifies the activity as the transaction of business in Connecticut. If the claim in a lawsuit arises from this business activity, then it is enough to meet the requirementof Conn. Gen. Stat. § 52-59b(a)(1) that the cause of action arises from the transaction of any business in Connecticut.
The Connecticut Supreme Court's decision in Zartolas v. Nisenfeld, 184 Conn. 471 (1981) is instructive. The issue there was whether a defendant who was in Iowa when he executed a warranty deed for real property located in Connecticut could be said for purposes of the Connecticut long-arm statute to be transacting business in Connecticut. The court said yes. It reasoned that "[b]y owning land in Connecticut the defendants invoked the benefits and protection of Connecticut's laws of real property, including as an incident of ownership the right to sell the property," and "the fundamental incidents of this warranty deed [for land in Connecticut] render the defendants' purposeful execution of it [while the defendants were in Iowa] a 'transaction of any business within this state'" under Conn. Gen. Stat. § 52-59b(a)(1). Id. at 475-76.
The same reasoning applies here. Notwithstanding that Patel may have been in California when he engaged in his management of and negotiations to sell the hotel, the location of the hotel property in Connecticut meant that he was transacting business in Connecticut. The very nature of a deal to sell a piece of real property in Connecticut meant that he "invoked the benefits and...
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