Picard v. Elbaum

• Decision Date: 27 February 1989
• Docket Number: No. 88 Civ. 8023 (MBM).,88 Civ. 8023 (MBM).
• Parties: Irving H. PICARD, as Receiver for David Peter Bloom and Greater Sutton Investors Group, Inc. a/k/a Sutton Investors Group and Sutton Investment Group, Plaintiff, v. Judith ELBAUM and Jerome D. Elbaum, Defendants.
• Court: U.S. District Court — Southern District of New York

707 F. Supp. 144

Irving H. PICARD, as Receiver for David Peter Bloom and Greater Sutton Investors Group, Inc. a/k/a Sutton Investors Group and Sutton Investment Group, Plaintiff, v. Judith ELBAUM and Jerome D. Elbaum, Defendants.

No. 88 Civ. 8023 (MBM).

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

February 27, 1989.

Elyse S. Goldweber, Joseph Lauriello, Olshan Grundman & Frome, New York City, for plaintiff.

Judith Elbaum, pro se.

Jerome D. Elbaum, pro se.

OPINION AND ORDER

MUKASEY, District Judge.

Plaintiff Irving H. Picard, receiver for the estate of David Peter Bloom and Greater Sutton Investors Group, Inc., filed this diversity lawsuit to recoup $39,216.47 paid to defendants Judith and Jerome Elbaum, Connecticut residents, as "profit" on a $10,000 investment placed with Bloom. As is now public knowledge, Bloom engaged in a scheme whereby funds entrusted to him for investment purposes were diverted to his personal use and expended to purchase works of art, real estate, luxury automobiles, trips, and expensive meals. Bloom also used investors' funds to repay those like the Elbaums who were fortunate enough to close out their "accounts" before Bloom's scheme was uncovered. Plaintiff was appointed receiver of Bloom's estate as part of the final injunction in a related action, S.E.C. v. David Peter Bloom and Greater Sutton Investors Group Inc., a/k/a Sutton Investors Group and Sutton Investment Group, 88 Civ. 0201 (MBM), and is vested by that judgment with the task of recovering Bloom's fictitious disbursements in order to reimburse defrauded investors. Plaintiff contends that the transfer of "profits" to defendants violated New York Debt & Cred.Law §§ 272, 273, 275, 276 (McKinney 1986) and common law principles of unjust enrichment and seeks to recoup that sum.

Defendants have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. For the reasons stated below, defendants' motion is denied.

The Court may determine a motion pursuant to Rule 12(b)(2) on the basis of the affidavits presented. See Visual Sciences, Inc. v. Integrated Communications Inc., 660 F.2d 56, 58 (2d Cir.1981); Data Disc, Inc. v. Systems Technology Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). In order to prevail, plaintiff need only make out a prima facie case of jurisdiction, Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981), with all inferences in its favor. Nee v. HHM Financial Servs., Inc., 661 F.Supp. 1180, 1181 (S.D.N.Y.1987) (Pollack, J.); Interface Biomedical Laboratories v. Axiom Medical, Inc., 600 F.Supp. 731, 735 (E.D.N.Y. 1985). See also Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).

In an action based on diversity of citizenship, the law of the state in which the action is begun determines whether the federal court has personal jurisdiction. Arrowsmith v. United Press Int'l, 320 F.2d 219 (2d Cir.1963). Plaintiff relies on N.Y. Civ.Prac.L. & Rules § 302(a)(1) (CPLR) to assert jurisdiction here. CPLR § 302(a)(1) establishes jurisdiction as to a cause of action arising from the acts of a non-domiciliary defendant who in person or through an agent "... transacts any business within the state." The fact that the non-domiciliary was never physically present in New York is not controlling. Dero Enters., Inc. v. Georgia Girl Fashions, Inc., 598 F.Supp. 318, 321 (S.D.N.Y.1984). Rather, the proper focus is whether the totality of circumstances, Cutco Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986), demonstrates that the defendants "`purposefully availed themselves of the privilege of conducting activities 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 Mayes v. Leipziger, 674 F.2d 178, 183 (2d Cir.1982).

With those principles in mind, I turn to defendants' contacts with the New York forum. It is undisputed that this lawsuit arises out of defendants' contacts with New York; what is contested is the extent of those contacts. Plaintiff alleges that, in or about December 1985, Mrs. Elbaum, a Connecticut resident, sent a check for $10,000 to Bloom in New York for the express purpose of purchasing a 10% interest in a thoroughbred horse named "Lightswitch." (Picard Aff. at ¶ 8(a); Judith Elbaum Aff. at ¶ 9) Unbeknownst to the Elbaums, no such investment was ever made. (Picard Aff. at ¶ 8(b)) In or about October, 1986, Bloom contacted Mrs. Elbaum and advised her that he had sold the horse for $8000, but retained an interest in two unnamed colts. He offered to open an investment account in New York in her name to invest in securities on stock exchanges located in New York, or in the over-the-counter market. Mrs. Elbaum agreed to the arrangement. Again, unbeknownst to the Elbaums, no such account was ever opened. (Picard Aff. at ¶ 8(c)) At the end of 1986, Bloom sent Mrs. Elbaum a fictitious account statement showing that he had bought ten Apple Computer Co. "calls" in her name.

On April 5, 1987, Mrs. Elbaum "wrote a letter to Mr. Bloom explaining that I wanted to liquidate my investment." (Judith Elbaum Aff. at ¶ 9) Soon after, Bloom told the Elbaums he had complied with their wishes and sold the calls for $35,216.47. On April 10, 1987, Jerome Elbaum wrote Bloom stating that he would arrange for either his wife's father or his son Steven to pick up the check in New York. (Picard Aff., Exh. D) On April 13, 1987, at his parents' direction, Steven Elbaum picked up the check representing the fictitious profit. (Jerome Elbaum Aff. at ¶ 9; Judith Elbaum Aff. at 10; Picard Aff. at ¶ 8(f)) Bloom included a cover letter listing a New York office address with the check. Thereafter, Bloom allegedly sold the two unnamed colts and arranged on November 17, 1987 to have an additional $14,000 wired from a Sutton Investment Group account at a New York bank to Mr. Elbaum's account at a Connecticut bank. (Picard Aff. at ¶ 9)

During the course of their two-year relationship with Bloom, the Elbaums never had a face-to-face meeting with Bloom in New York. However, Mr. Elbaum met Bloom once in Stamford, Connecticut, in March 1987. (Jerome Elbaum Aff. at ¶ 6) Otherwise, their contact was limited to telephone calls and letters. Specifically, although Mrs. Elbaum admits to "several telephone conversations with Mr. Bloom concerning the status of my investment," she contends that "all of the telephone conversations were calls made by Mr. Bloom to me in the State of Connecticut." (Judith Elbaum Aff. at ¶ 8) For his part, Mr. Elbaum, whom Mrs. Elbaum maintains made "most of the inquiries concerning the investment" (Id.), "wrote ... five letters to Mr. Bloom in New York, inquiring about the status of my wife's investment through Mr. Bloom." (Jerome Elbaum Aff. at ¶ 7) He also had a "few" telephone conversations with Bloom in New York, but the "majority" of those calls were initiated by Bloom. (Id.)

Although each defendant attempts to differentiate his or her activity from the other, I find that, even relying only on their own affidavits, they were acting as agents for one another such that, if personal jurisdiction is valid against one, it will be valid against the other. Indeed, for all practical purposes, the Elbaums were acting at all times as an unitary economic unit.

Although placing an order by telephone from outside New York, without more, does not constitute transaction of business by a defendant, see Beacon Enters. v. Menzies, 715 F.2d 757, 766 (2d Cir.1983), Dero Enters., 598 F.Supp. at 321 (collecting cases), Dogan v. Harbert Construction Corp., 507 F.Supp. 254, 261 (S.D. N.Y.1980), New York state courts have crafted several limited exceptions where "significant alternative" factors are present. Metropolitan Air Serv., Inc. v. Penberthy Aircraft Leasing Co., 648 F.Supp. 1153, 1156 (1986). One famous exception concerns a non-domiciliary who actively participated in an auction in New York by a telephone hook-up. Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 18, 308 N.Y.S.2d 337, 340, 256 N.E.2d 506, 508 (1970). Even though only one transaction was involved, the court found jurisdiction proper because the "defendant, in a very real sense, projected himself into the auction room." Id.

More apropos the case at hand, New York courts have also found jurisdiction where a defendant engages in continuous activity such that, although he remains physically outside the state, his actions impact heavily on the forum. This exception is invoked most often when a non-domiciliary maintains an ongoing investment account in New York and especially when he directs the sale of securities in New York. In such circumstances, any additional contact with the forum — even one which standing alone would not be enough — suffices to invoke New York's long-arm statute. In Ehrlich-Bober & Co. v. Univ. of Houston, 49 N.Y.2d 574, 427 N.Y.S.2d 604, 404 N.E. 2d 726 (1980), the New York Court of Appeals affirmed the assertion of jurisdiction over a non-domiciliary who, during a six month period, had engaged in 22 "reverse repurchase" transactions in which securities were sold through a New York securities dealer and then later repurchased on a specified date. All contacts were by phone and mail; on one occasion, however, defendant's agent travelled to New York and purchased securities from plaintiff. Even though this one contact would probably not suffice to assert jurisdiction if the transaction were a one-shot deal, see, e.g., McKee Electric Co., 20 N.Y.2d 377, 283 N.Y.S.2d at 38, 229 N.E.2d at 609 (no jurisdiction where the parties communicated only by mail and defendant's agents met with plaintiff once for two hours in New York to discuss matters related to the contract), it was sufficient to find that defendant there was...