Palace Exploration Co. v. Petroleum Development

• Decision Date: 13 November 1998
• Docket Number: No. 98 Civ. 248(RLC).,98 Civ. 248(RLC).
• Citation: 41 F.Supp.2d 427
• Parties: PALACE EXPLORATION COMPANY, Plaintiff, v. PETROLEUM DEVELOPMENT COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

41 F.Supp.2d 427

PALACE EXPLORATION COMPANY, Plaintiff, v. PETROLEUM DEVELOPMENT COMPANY, Defendant.

No. 98 Civ. 248(RLC).

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

November 13, 1998.

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Fischbein • Badillo • Wagner • Harding, Palace Exploration Company, New York, New York (Jeffrey Mitchell, of counsel), for plaintiff.

Wolff & Samson, Petroleum Development Company, New York, New York (Darryl Weissman, of counsel), for defendant.

OPINION

CARTER, District Judge.

Plaintiff, Palace Exploration Company ("Palace"), brings this diversity action seeking the recision of a contract it entered into with defendant Petroleum Development Company ("PDC") on the grounds of false misrepresentation and breach of contract. Defendant moves for dismissal pursuant to Rules 12(b)(2) and 12(b)(3), F.R. Civ. P., or under the common law doctrine of forum non conveniens. In the alternative, defendant seeks transfer to the Northern District of Oklahoma pursuant to 28 U.S.C. 1404(a).

FACTS

Palace is a Delaware corporation with its principal place of business in New York, and is managed by Bistate Oil Management Corporation, which oversees oil and gas operations throughout the United States. PDC is an Oklahoma corporation with its principal place of business in Oklahoma. PDC has no offices, agents, property, bank accounts, or assets in New York, and has never been licensed or formally authorized to conduct business in the state. Furthermore, according to its president, PDC has never sent any officer, employee, or agent into New York for any purpose. The company is engaged in the business of oil and gas exploration in Oklahoma and its surrounding states.

The first contact between Palace and PDC occurred in late 1996 when PDC purchased an assignment of certain rights belonging to Plains Petroleum Operating Company ("Plains"), a nonparty in this action, in a gas exploration venture in Ellis County, Oklahoma. At the time, Palace owned an interest in the Plains venture and agreed to "farmout [sic]" its rights to PDC. During the negotiation of the Plains arrangement, Paul Howard ("Howard"), the Vice President of Palace, expressed an interest in being informed of future oil or gas ventures in which PDC planned to participate, and in which parties such as Palace could purchase a working interest.

In 1997, two such opportunities arose. On both occasions, PDC contacted Palace in New York from its Oklahoma office to inform Palace of the opportunities. As a result, Palace and PDC entered into two contracts involving exploration ventures, one in Oklahoma, the other in Arkansas. It is the agreement involving the venture in Oklahoma (the "Agreement") that is at the core of this litigation.

The facts surrounding the formation of the Agreement are not in dispute. In July 1997, William Ingram ("Ingram"), the president of PDC, telephoned Howard to inform Palace about an opportunity to participate in the drilling of an oil well in Pittsburg County, Oklahoma (the "Well"). Subsequently, Ingram and Howard engaged in several telephone calls concerning the cost of drilling the Well. On or about July 23, 1997, Ingram faxed Howard information regarding the Well. Ingram then represented to Howard over the telephone that the cost to drill the Well would be approximately $280,000. Palace committed to the venture shortly thereafter and signed a commitment letter sent by PDC whereby Palace agreed to purchase a 50 percent interest in the Well for an initial purchase price of $20,000 and to pay half of the costs and expenses incurred in drilling and equipping the Well for production. On August 4, 1997, PDC sent the final Exploration Agreement to Palace, which was then signed and executed by Palace and sent back to PDC. On August 26, 1997, Palace signed and returned an Authorization for Expenditure (the "AFE") to PDC. The AFE estimated, as Ingram had earlier stated to Howard, that the drilling costs would be $280,000.

However, the drilling costs to date have exceeded $735,000. Evidently, the substantial cost overrun is the result of subsurface problems discovered after PDC began drilling the Well. Thus far, as pursuant to the Agreement, Palace has made three payments to PDC from its New York bank account: (1) $20,000, the agreed upon initial purchase price, on August 26, 1997; (2) $140,000, which equaled half of the estimated drilling costs, on September 11, 1997; and (3) $218,057.93, which equaled the balance of Palace's share of the actual drilling costs at the time, on December 12, 1997.

Palace seeks recision of the Agreement, alleging that PDC fraudulently induced it to enter into the venture. Specifically, Palace asserts that PDC was aware of similar problems experienced by Amoco, which had drilled a test well in close proximity to the Well, and withheld such information from Palace in order to induce it to enter into the contract. Furthermore, Palace alleges that in addition to concealing the prospect of serious cost overruns, PDC falsely assured Palace on many occasions that it could drill the Well for the estimated $280,000 or less.

Palace filed suit on December 3, 1997 in New York state court, seeking the award of recisionary damages equal to all amounts that it had paid pursuant to the terms of the contract. The case was subsequently removed to this court on PDC's request. PDC now moves for a dismissal on the grounds that it is not subject to personal jurisdiction in this court under Rule 12(b)(2), F.R. Civ. P., or for improper venue under Rule 12(b)(3), F.R. Civ. P. Alternatively, PDC seeks a transfer to the Northern District of Oklahoma pursuant to 28 U.S.C. 1404(a). Lastly, PDC seeks a dismissal under the doctrine of forum non conveniens.

DISCUSSION

I. Personal Jurisdiction

Personal jurisdiction in a diversity action is determined by the laws of the forum state in which the district court sits; therefore the law of New York is applicable to this case. See United States v. First Nat'l City Bank, 379 U.S. 378, 381-82, 85 S.Ct. 528, 13 L.Ed.2d 365 (1965); Arrowsmith v. United Press Int'l, 320 F.2d 219, 222-23 (2d Cir.1963) (en banc). Furthermore, the exercise of jurisdiction must comport with federal constitutional principles of due process. See Mayes v. Leipziger, 674 F.2d 178, 183 (2d Cir.1982).

Rule 12(d) of the F.R. Civ. P. grants the court broad discretion to hear and decide a motion to dismiss for lack of personal jurisdiction before trial or to defer the matter until trial. See CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 364 (2d Cir.1986). The court may decide the motion solely upon pleadings and affidavits or by an evidentiary proceeding. See id.; Falik v. Smith, 884 F.Supp. 862, 864 (S.D.N.Y.1995) (Carter, J.). Where the court chooses not to conduct a full-blown evidentiary hearing before trial, plaintiff need only make a prima facie showing of personal jurisdiction over the defendant. See Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981). However, it remains incumbent upon the plaintiff to ultimately establish that jurisdiction is proper by a preponderance of the evidence at trial. See id.; Mayes, 674 F.2d at 182 n. 3. In the instant case, no evidentiary hearing has been held and thus the court need only determine whether Palace has made a prima facie showing of jurisdiction, construing all pleadings and affidavits 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. Jurisdiction under CPLR 302(a)(1)

Plaintiff first contends that the court has jurisdiction pursuant to Section 302(a)(1) of the New York Civil Practice Law ("CPLR"). CPLR § 302(a)(1), which is part of New York's long arm statute, allows personal jurisdiction over any non-domiciliary who in person or through an agent "transacts any business within the state or contracts anywhere to supply goods or services in the state" when the cause of action is related to the transaction or the contract. See CutCo Indus., Inc., 806 F.2d at 365; Manhattan Life Insur. Co. v. A.J. Stratton Syndicate (No. 782), 731 F.Supp. 587, 592 n. 7 (S.D.N.Y.1990) (Carter, J.) (test requires "some articulable nexus between the business transacted and the cause of action sued upon.") (citation omitted). The "transacting business" test under CPLR § 302(a)(1) requires not regular and systematic activities but rather the purposeful availment of the privilege of conducting activities within New York, thus invoking the benefits and protections of its laws. See CutCo Indus., Inc., 806 F.2d at 365 (citation omitted); Wilhelmshaven Acquisition Corp. v. Asher, 810 F.Supp. 108, 111-12 (S.D.N.Y.1993) (Cedarbaum, J.); PaineWebber Inc. v. Westgate Group, Inc., 748 F.Supp. 115, 118 (S.D.N.Y.1990) (Sweet, J.). Thus, § 302(a)(1) requires only a minimal quantity of activity, provided that it is of the right nature and quality. See United States Theatre Corp. v. Gunwyn/Lansburgh Ltd. Partnership, 825 F.Supp. 594, 595 (S.D.N.Y.1993) (Conboy, J.) ("Transacting business ... require[s] a certain quality, rather than a specific quantity, of contacts with the forum."). See also Parke-Bernet Galleries Inc. v. Franklyn, 26 N.Y.2d 13, 18, 256 N.E.2d 506, 508-09, 308 N.Y.S.2d 337, 340-41 (1970) (finding one phone call constituted "transaction of business"). Furthermore, in determining whether defendant's contacts are of the appropriate nature, the court must examine the totality of the circumstances. See Sterling Nat'l Bank v. Fidelity Mortgage Investors, 510 F.2d 870, 873 (2d Cir.1975); Pilates, Inc. v. Pilates Inst., Inc., 891 F.Supp. 175, 178 (S.D.N.Y.1995) (Wood, J.) ("no precise formula" in determining jurisdiction under CPLR § 302(a)(1)).

Palace asserts that PDC has "transacted business" within the meaning of CPLR § 302(a)(1) based upon PDC's telephone calls, facsimile transmissions, and mailings to New York in connection with the negotiation and execution of the Agreement....