Orchard Yarn & Thread Co. v. Schaub
| Decision Date | 05 June 2018 |
| Docket Number | 17-CV-2477 (JMF) |
| Parties | ORCHARD YARN AND THREAD COMPANY, INC., Plaintiff, v. RENE SCHAUB, Defendant. |
| Court | U.S. District Court — Southern District of New York |
In 2009, Plaintiff Orchard Yarn and Thread Company ("Orchard"), a New York company, entered into a licensing agreement (the "Agreement") with Defendant Rene Schaub, a California resident, relating to certain knitting and weaving hand loom products developed by Schaub. (Docket No. 29 ("Schaub Decl."), Ex. 2 ("2009 Agreement")). The parties operated under the Agreement (which was amended in 2010) without apparent incident until 2017, when Schaub accused Orchard of breaching the Agreement based on its sale of an allegedly competitive product. (Docket No. 21, Ex. F). The parties engaged in negotiations for a month but failed to reach agreement. (Id.). Thereafter, Orchard filed this suit seeking a declaratory judgment that it is not in breach of the Agreement. Schaub now moves, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, to dismiss Orchard's claims for lack of personal jurisdiction and for improper venue. For the reasons that follow, Schaub's motion is GRANTED, and the case is DISMISSED.
A plaintiff bears the burden of establishing personal jurisdiction over a defendant. See, e.g., Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010). Where, as here, the parties have not engaged in discovery, a plaintiff seeking to defeat a motion to dismiss based on the lack of personal jurisdiction need only make a prima facie showing that jurisdiction exists. See, e.g., Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84-85 (2d Cir. 2013) (per curiam). That requires "an averment of facts that, if credited[,] would suffice" to establish that jurisdiction exists. In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003) (per curiam). A court must therefore view all facts in the light most favorable to the plaintiff. See, e.g., TradeComet.com LLC v. Google, Inc., 647 F.3d 472, 475 (2d Cir. 2011). The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits, which the district court may also consider. See, e.g., MacDermid, Inc. v. Deiter, 702 F.3d 725, 727-28 (2d Cir. 2012). A court will not, however, "accept [a plaintiff's] conclusory allegations or draw argumentative inferences." In re Terrorist Attacks on Sept. 11, 2001, 392 F. Supp. 2d 539, 556 (S.D.N.Y. 2005) (internal citation and quotation marks omitted).
To establish personal jurisdiction in this case, Orchard relies solely on Section 302(a)(1) of New York's long-arm statute (see Docket No. 31 ("Pl.'s Opp'n"), at 10-13), which permits a court to exercise jurisdiction over a person or entity that "in person or through an agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state." N.Y. C.P.L.R. § 302(a)(1). "Transacting business" within the meaning of the long-arm statute "has been interpreted to require a certain quality, rather than a specific quantity, of contacts with New York." Schutte Bagclosures Inc. v. Kwik Lok Corp., 48 F. Supp. 3d 675, 684 (S.D.N.Y. 2014) (internal quotation marks omitted). "[T]he overriding criterion necessary to establish a transaction of business is some act by which the defendant purposefully avails itself of the privilege of conducting activities within New York." Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 61 (2d Cir. 2012) (internal quotation marks omitted).
In a contract action, to determine whether an out-of-state defendant "transacts business" in New York within the meaning of the long-arm statute, courts focus on the following factors:
(i) whether the defendant has an on-going contractual relationship with a New York corporation; (ii) whether the contract was negotiated or executed in New York and whether, after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship; (iii) what the choice-of-law clause is in any such contract; and (iv) whether the contract requires franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state.
Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 22 (2d Cir. 2004). "Another important factor is whether the contract is to be performed in New York." Ye Olde Time Keepers, Inc. v. C.R. Martin Auctioneers, Inc., No. 17-CV-04377 (ADS), 2018 WL 1832930, at *5 (E.D.N.Y. Apr. 17, 2018); accord Navaera Scis., LLC v. Acuity Forensic Inc., 667 F. Supp. 2d 369, 375 (S.D.N.Y. 2009) (). "While all of these factors are relevant, no one factor is dispositive and others may be considered." Visual Footcare Techs., LLC v. CFS Allied Health Educ., LLC, 13-CV-4588 (JSR), 2014 WL 772215, at *7 (S.D.N.Y. Feb. 21, 2014) (internal quotation marks omitted).
Applying the relevant standards here, the Court concludes that Orchard falls short of establishing that personal jurisdiction over Schaub is proper. First, there is no allegation that the contract was negotiated or executed by Schaub in New York or that she visited New York for the purpose of meeting with parties to the contract. Indeed, there is no allegation, in the Amended Complaint or otherwise, that Schaub has ever even set foot in New York. Compounding matters for Orchard, Schaub alleges that she has never visited the state and that she "discussed and negotiated the terms of [the] agreement on the telephone while [she] was in [California]." (Schaub Decl. ¶¶ 4, 12). And while Orchard contends that "where Schaub was physicallylocated when she negotiated the Licenses or if she has subsequently visited New York . . . is solely within the knowledge of Schaub" (Pl.'s Opp'n 11), that contention misses the point of the relevant enquiry. The relevant enquiry is whether Schaub visited New York "for the purpose of meeting with [Orchard]," Sunward Elecs., 362 F.3d at 22 (internal quotation marks omitted) — not whether she ever visited New York generally — and Orchard would obviously have been privy to whether such a meeting occurred. And for what it is worth, Orchard does not even allege that its own employees were in New York when the Agreement was negotiated and executed.1
Second, and even more significant, Orchard does not allege that it has ever marketed or sold Schaub's products in New York. To be sure, Orchard does allege in its Amended Complaint — in conclusory fashion — that Schaub "transact[ed] business in New York and contract[ed] to supply goods and/or services in New York." (Docket No. 21, ¶ 19). But that allegation, which goes undiscussed in Orchard's opposition papers, appears to be based on nothing more than the Agreement itself, which contains a provision granting Orchard "the exclusive rights for the production and sale of the Property in the U.S. and worldwide." (See 2009 Agreement, ¶ 1; Docket No. 29, Ex. 3, ¶ 1). Without more — and, once again, if there were more, Orchard would have been privy to it — the mere fact of such an expansive grant does not establish that Schaub projected herself or her products into the New York market. Cf. Cont'l Indus. Grp., Inc. v. Equate Petrochemical Co., 586 F. App'x 768, 770 (2d Cir. 2014) ().
In arguing that personal jurisdiction is proper, Orchard emphasizes the fact that it is a New York company and that the Agreement contains a New York choice-of-law provision. (Pl.'s Opp'n 11, 13 (citing Flame-Spray Indus. Inc. v. GTV Auto. GmbH, 266 F. Supp. 3d 608, 618 (E.D.N.Y. 2017))). But "the mere fact that an out-of-state defendant enters into a contract with a [New York] company . . . does not establish the requisite minimum contacts unless that contract projects the defendant into the New York market." Navaera Scis., 667 F. Supp. 2d at 375 (internal quotation marks and brackets omitted). So too, the choice-of-law clause alone "is insufficient to confer personal jurisdiction over a non-domiciliary." Id. at 375. That is, where other factors point against jurisdiction, as they do here, "the choice of law clause simply does [not] carry enough weight for plaintiff to meet its burden." Premier Lending Servs., Inc. v. J.L.J. Assocs., 924 F. Supp. 13, 17 (S.D.N.Y. 1996). Finally, Orchard cites the Agreement's "notice" provision, which calls for notices to be addressed to its New York address. (Pl.'s Opp'n 12 (citing 2009 Agreement ¶ 8)). As Judge Kaplan has explained, however, "the justification for considering such notices as a distinct factor in the jurisdictional analysis is tenuous" because the fact that "a contract between an out-of-state party and a New York entity requires that notification be sent to New York is merely a function of that party's contracting with a New York entity, the first factor in our Circuit's analysis." Navaera Scis., 667 F. Supp. 2d at 376; see also Bracken v. MH Pillars Inc., No. 15-CV-7302 (RA), 2016 WL 7496735, at *4 (S.D.N.Y. Dec. 29, 2016) (). In any event, Orchard does not allege that Schaub actually sent pre-suit notices to New York — an omission that is all the more notable because Schaub...
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