PaineWebber Inc. v. Westgate Group, Inc.

• Decision Date: 21 September 1990
• Docket Number: No. 89 Civ. 5618 (RWS).,89 Civ. 5618 (RWS).
• Citation: 748 F. Supp. 115
• Parties: PAINEWEBBER INCORPORATED, Plaintiff, v. The WESTGATE GROUP, INC., and UCP Holdings Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

748 F. Supp. 115

PAINEWEBBER INCORPORATED, Plaintiff, v. The WESTGATE GROUP, INC., and UCP Holdings Inc., Defendants.

No. 89 Civ. 5618 (RWS).

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

September 21, 1990.

Paul, Weiss, Rifkind, Wharton & Garrison (Lewis R. Clayton, Clifford Peterson, of counsel), New York City, for plaintiff.

Kelly & Roth (William H. Roth, of counsel), New York City, for defendants.

OPINION

SWEET, District Judge.

Defendant, The Westgate Group, Inc. ("Westgate"), has moved pursuant to Federal Rule of Civil Procedure 12(b)(2) to dismiss the complaint for lack of jurisdiction over the person or, alternatively, pursuant to 28 U.S.C. § 1404(a) to transfer this action to the United States District Court for the Northern District of Texas. For the reasons set forth below, the motion is granted in part.

PRIOR PROCEEDINGS

Plaintiff PaineWebber Incorporated ("PaineWebber"), a citizen of New York, brought this diversity action on August 21, 1989, alleging that Westgate, a citizen of Texas, had failed to pay PaineWebber in excess of $740,000 allegedly due for financial advice given under an agreement entered into by Westgate in connection with its planned acquisition of United Concrete Pipe Corporation. Westgate answered on September 12, 1989, asserting among other things, that the Court lacked personal jurisdiction. On September 22, 1989, Westgate moved to dismiss for lack of personal jurisdiction over Westgate or to transfer the action to Dallas, Texas pursuant to 28 U.S.C. § 1404.

FACTS

The facts are not in dispute. Westgate is a Texas corporation, which, up through the date of the service of process, maintained its principal place of business in Dallas, Texas.¹ Westgate brokers real estate transactions and acts as an advisor to real estate investors. It has never engaged in this business or any other business in New York State. Westgate does not maintain a New York office, phone listing or bank account nor does it solicit business in New York. None of the real estate transactions which it brokered or as to which it acted as advisor occurred in New York or involved New York property.

In November of 1988, Westgate's President C. Frederick Wehba ("Wehba") was introduced to a representative of the Dallas office of PaineWebber. The introduction occurred in Dallas. After negotiations in Dallas, the parties agreed that PaineWebber would act as Westgate's financial adviser in Westgate's attempt to purchase United Concrete Pipe Corporation ("United Pipe"). PaineWebber and Westgate executed an engagement letter in Texas, typed on PaineWebber's Dallas office stationery.

A PaineWebber representative from the Dallas office accompanied Westgate's president to negotiating sessions with United Pipe's owner, Hillsborough Holding Corporation ("Hillsborough"). Hillsborough is a Delaware Corporation with a principal place of business in Tampa, Florida and United Pipe is and was a Delaware corporation with facilities in Texas, Utah, and California. Neither company was located in New York. During the course of the representation, a PaineWebber representative from Dallas accompanied Westgate's president on negotiations or inspection visits related to the United Pipe facilities in Texas, Utah and California.

In the engagement letter, PaineWebber agreed to use best efforts to raise financing for the purchase of United Pipe. Westgate is aware of only one contact that PaineWebber made in furtherance of this obligation and that was to solicit a Citicorp subsidiary in Dallas to provide financing for the purchase.

Eventually an agreement was reached whereby a newly-formed corporation, UCP Holdings, Inc. ("UCP Holdings"), wholly-owned by Wehba, agreed to purchase the shares of United Pipe. This purchase contract was negotiated and executed in Dallas. Westgate, although not the purchaser of United Pipe, was a signatory to the purchase agreement in Texas. Westgate is not a shareholder of UCP Holdings, and does not play any role in its operations.

Westgate claims that the sole contact with New York was purely fortuitous and wholly unrelated to the instant claim: Hillsborough was represented by the law firm of Simpson, Thacher & Bartlett and for the convenience of Hillsborough and its counsel, the closing in New York of Hillsborough's sale of United Pipe was held in Simpson Thacher's New York offices. The purchaser of United Pipe at the closing was not Westgate but UCP Holdings. At the closing the parties signed a modification of the Purchase Agreement. The modification had no relation to the underlying claim in this suit.

PaineWebber alleges that Westgate engaged PaineWebber precisely because PaineWebber was a New York investment banking organization and because the underlying transaction was primarily a New York transaction. Westgate sent numerous telecopies and faxes regarding financial data and an additional real estate matter to PaineWebber's New York offices through the relevant time period in furtherance of the contract with PaineWebber and involving New York. PaineWebber similarly sent materials to Westgate from its New York Office. Westgate and PaineWebber's New York Office exchanged phone calls relating to the transaction several times each week. PaineWebber performed various services, including document reviews, revision of an LBO model, dissemination of information and advisory services, on behalf of Westgate from its New York Office. Finally, PaineWebber provided advising services to Westgate during the closing of the purchase of UCP Holdings, Wehba's wholly-owned acquisition company.

The Purchase Agreement in this transaction refers to "Buyer, Westgate and Wehba" as a group. Westgate and Wehba both were parties to the Stock Purchase Agreement and Wehba was the sole stockholder of Westgate and of UCP Holdings. Wehba guaranteed the loans taken out by UCP Holdings and at the closing, Wehba and both of his corporations entered into a second agreement with the seller in which Wehba, Westgate, and UCP Holdings were collectively defined as the "Buyer." The agreement provided for a payment, on the closing date of 2.5 million to "Buyer" — Wehba, Westgate and UCP Holdings.

PERSONAL JURISDICTION

A federal court in a diversity action must look at the forum state's general jurisdictional or long-arm jurisdictional statute to determine whether in personam jurisdiction exists over a nonresident defendant. See Savin v. Ranier, 898 F.2d 304, 306 (2d Cir.1990) (citing Arrowsmith v. United Press Int'l, 320 F.2d 219, 222-25 (2d Cir.1963) (en banc)). If the relevant statute allows the court to exercise jurisdiction then the court must determine "whether the exercise of jurisdiction comports with due process." Id. (citation omitted). In the present action the forum state is New York and PaineWebber alleges that Westgate is subject to jurisdiction under Civil Practice Law and Rules (C.P.L.R.) § 302(a)(1).² In a motion to dismiss for lack of jurisdiction, the pleadings and affidavits are to be construed in the light most favorable to the plaintiff. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985).

A. New York Long-Arm Jurisdiction

Under C.P.L.R. § 302(a)(2) the relevant two-part test is whether Westgate has transacted business in New York and whether the cause of action arises out of the subject matter of the business transacted. Because PaineWebber has been afforded extensive jurisdictional discovery it must establish jurisdiction by a preponderance of the evidence. Hvide Marine Intern. v. Employers Ins. of Wausau, 724 F.Supp. 180, 182 (S.D.N.Y.1989) (citing Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir.1984)).

B. Westgate Did Not Transact Business in New York.

To determine whether Westgate transacted business in New York within the meaning of § 302 it is necessary to determine whether Westgate "purposefully availed itself of the privilege of conducting business within New York thus invoking the benefits and protections of its laws." McKee Electric Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 382, 283 N.Y. S.2d 34, 38, 229 N.E.2d 604, 607 (1967) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958)); see also CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986) (same). New York law looks to the totality of circumstances to determine whether the defendant has engaged in some purposeful activity in New York in connection with the matter in controversy, Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 457, 261 N.Y.S.2d 8, 209 N.E.2d 68 (1965), cert. denied sub nom. Estwing Mfg. Co. v. Singer, 382 U.S. 905, 86 S.Ct. 241, 15 L.Ed.2d 158 (1965); Bower v. Weisman, 639 F.Supp. 532, 536 (S.D.N.Y.1986), and whether the defendant has sufficient minimum contacts with New York such that it should reasonably expect to be called to New York to defend its actions in the courts of this forum. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 198, 522 N.E.2d 40, 43 (1988). New York long-arm jurisdiction, however, is not congruent with "the full jurisdictional potential permissible under the federal constitution." Hedlund v. Products from Sweden, Inc., 698 F.Supp. 1087, 1090 (S.D.N.Y.1988) (citing C.P.L.R. § 302 Practice Commentary at 60 (McKinney 1972)).

The cause of action arises out of Westgate's refusal to pay for PaineWebber's allegedly deficient performance. This was a contract for financial services, specifically, the services of a large New York investment bank. At the time of engagement Westgate dealt exclusively with members of the PaineWebber Dallas Office but contemplated that engagement of a big New York investment house would mean the full availability of the entire firm's resources. In its engagement letter, PaineWebber undertook to perform two tasks for Westgate: 1) to assist in the negotiations with Hillsborough and 2) to arrange the financing of the purchase between...