Sandstone Springs, LLC v. Virag Distribution, LLC
| Decision Date | 29 July 2022 |
| Docket Number | 21-CV-541S |
| Parties | SANDSTONE SPRINGS, LLC, Plaintiff, v. VIRAG DISTRIBUTION, LLC, Defendant. |
| Court | U.S. District Court — Western District of New York |
DECISION AND ORDER
This is a removed diversity action for alleged breach of contract of a purchase agreement and its change orders. Plaintiff, a New York limited liability corporation (“LLC”), sued Defendant, a Florida LLC, for nonpayment of hemp and hemp products ordered in that purchase agreement.
Before this Court is Defendant's Motion to Dismiss or to Transfer this action (Docket No. 5). First, Defendant seeks dismissal of the action for lack of personal jurisdiction (under Federal Rule of Civil Procedure 12(b)(2)) or for improper venue (under Rule 12(b)(3) or 28 U.S.C. § 1406(a)) (id.). Alternatively, Defendant moves to transfer this case to the United States District Court for the Southern District of Florida, pursuant to 28 U.S.C § 1404 (id.). If this case remains in this Court, Defendant further argues the First, Third, and Fourth Causes of Action should be dismissed, under Federal Rule of Civil Procedure 12(b)(6).
For reasons stated below, Defendant's Motion to Dismiss (Docket No. 5) under Rule 12(b)(2) for lack of personal jurisdiction is granted in part ( allegations based upon general personal jurisdiction under New York CPLR 301) and denied in part (because Plaintiff established specific jurisdiction over Defendant in New York under CPLR 302(a)(1)). Defendant's Motion to Dismiss (id.) for improper venue under Rule 12(b)(3) is denied. Alternatively, Defendant's Motion to Transfer (id.) under 28 U.S.C. § 1404 to the Southern District of Florida is denied. Defendant's alternative Motion to Dismiss (id.) the First, Third, and Fourth Causes of Action is granted to dismiss each of these Causes of Action.
A. Procedural History
After Plaintiff filed this action in New York State Supreme Court on March 19, 2021, Defendant removed the case to this Court (Docket No. 1, Notice of Removal). On May 4, 2021, Plaintiff filed its Complaint in this Court (Docket No. 4).
Plaintiff alleges it sells and resells products, here hemp and hemp products . Meanwhile, Defendant purchases and resells products . On December 10, 2019, Defendant purchased gummies, “smokes,” hemp, and various packaging from Plaintiff .
For jurisdictional and venue issues, Plaintiff alleges the negotiations leading to the order of hemp products. Plaintiff claims that on December 4, 2019, Defendant's president, Vasilios Koutsogiannis (“Koutsogiannis”), met with Bordynuik in Niagara Falls, New York, expressing interest in purchasing hemp products from Plaintiff (id. ¶ 13). Plaintiff agreed to sell products to Defendant (id. ¶ 15).
Defendant, however, disputes the importance of this meeting. Defendant claims that there was no negotiation of the deal there. ) Defendant's president denied traveling to New York to conduct business with Plaintiff (Docket No. 5, Koutsogiannis Decl. ¶ 12; Docket No. 9, Koutsogiannis Reply Decl. ¶ 11). Instead, Defendant contends that the parties in fact negotiated the purchase agreement in a series of email messages and telephone conversations with Koutsogiannis in Florida after December 4 (Docket No. 5, Koutsogiannis Decl. ¶ 13; Docket No. 9, Koutsogiannis Reply Decl. ¶ 14).
The Complaint describes the initial purchase order . On December 10, 2019, Defendant purchased products from Plaintiff valued at $1,063,800, requiring a 50% down payment (or $531,900) with the remainder due upon shipment of products (id.). On December 13, 2019, Defendant wired the 50% down payment (id. ¶¶ 8, 17).
On December 14, Koutsogiannis advised Plaintiff that he could not do the graphics on his own and required Plaintiff's help. Plaintiff then engaged its graphic designer on the products, adding to the cost and delaying production. (Id. ¶ 18.) On January 16, 2020, Plaintiff purchased hemp flower for Defendant's order (id. ¶ 19).
Plaintiff alleges that Defendant changed its mind on the graphics, packaging, and choice of containers for the hemp products, delaying the order (id. ¶ 20). On February 27, 2020, Defendant informed Plaintiff that it was necessary to change the December 2019 invoice, submitting the first change order (id. ¶¶ 9, 21, Ex. B). Defendant sought to have hemp flower sent to it directly in bulk rather than in jars (id. ¶ 21, Ex. B). Defendant states that this hemp is “farm bill compliant and tests over 18% CBD” (id). Farm bill compliant hemp is industrial hemp that has delta-9 tetrahydrocannabinol concentration (or “THC”) that is no more than .3% of its dry weight, 7 U.S.C. § 5940(a)(2) (). On or about March 5, 2020, consistent with the first change order, Plaintiff shipped Defendant 110 pounds of hemp flower (id. ¶ 22).
On or about March 17, 2020, Defendant submitted a second change order reducing the jar portion of the order to bulk hemp flower, canceling gummy bag line items, and crediting the changes (id. ¶¶ 10, 23, Exs. C, D). On August 28, 2020, Defendant's chief financial and operations officer sent an executed second change order; during the intervening months that change order was with Defendant (id. ¶¶ 10, 24). After the second change order, the new total was $735,800; less the paid down payment, Defendant then owed $203,900 (id. ¶ 25). Plaintiff shipped the hemp product in October 2020 (id. ¶ 26).
From August 1, 2020, through January 6, 2021, Defendant refused to pay the $203,900 and Plaintiff made repeated demands for payment (id. ¶¶ 11,26-27, Exs. A-C). Defendant refused partial product fulfillment but wanted the entire order when it was complete (id. ¶ 28). Plaintiff claims it had to store completed products to complete Defendant's order (id. ¶ 29).
In the First Cause of Action, Plaintiff alleges Defendant failed to pay for the goods (id. ¶¶ 31-37). The Second Cause of Action alleges Defendant breached the contract by not paying the outstanding balance for the ordered hemp products (id. ¶¶ 39-45). The Third Cause of Action seeks specific performance of the invoice and two change orders (id. ¶¶ 47-52). Plaintiff alleges in its Fourth Cause of Action breach of the duty of good faith and fair dealing (id. ¶¶ 54-59).
Plaintiff alleges damages of $203,000 for the unpaid balance, costs for storage, and punitive damages of $1 million (id. ¶ 11, Wherefore Cl.).
Defendant moved to dismiss or to transfer this case to the Southern District of Florida (Docket No. 5[1]).
Defendant's president Koutsogiannis claimed he came to Niagara Falls on December 4, 2019, for a brief meeting with Bordynuik unrelated to any business with Plaintiff (Docket No. 5, Koutsogiannis Decl. ¶¶ 7, 8, 11). Koutsogiannis was approached and invited to have an introductory meeting with Bordynuik (id. ¶¶ 9-10). He (and any representative of Defendant) denied ever traveling to New York to conduct meetings with Plaintiff (id. ¶ 12). Upon returning to Florida, Koutsogiannis exchanged a series of email messages and telephone calls to negotiate the sale (id. ¶¶ 13, 14).
The parties then negotiated change orders after Defendant paid the deposit based upon the initial order (id. ¶¶ 16, 15). Koutsogiannis observed that the change order required that the bulk hemp had to be farm bill compliant , see 7 U.S.C. § 5940(a)(2). Plaintiff shipped 287 pounds of hemp flower but upon inspection it was found not to be farm bill compliant because it has a THC level above .3% (Docket No. 5, Koutsogiannis Decl. ¶ 18); see id. Defendant tried to resolve the matter by serving a confidential demand letter seeking refund of its down payment (id. ¶ 19, Ex. C). Defendant indicated that it planned to sue if this matter was not resolved but Plaintiff filed this action (id. ¶ 20, Ex. C, at 6, ¶ 21). Defendant questions Plaintiff's good faith in commencing this action, winning the race to the courthouse (id. ¶¶ 22-23).
John Bordynuik of Plaintiff responds that Koutsogiannis and Defendant was doing business in New York (Docket No. 8, Bordynuik Decl. ¶ 9). Plaintiff claims that Koutsogiannis had other businesses in New York and an apartment in New York City (id. ¶¶ 10, 11). Plaintiff, however, does not allege the business operations of Defendant (rather than its President) in New York.
In reply, Defendant claims that less than 20% of its business is in New York (Docket No. 9, Koutsogiannis Reply Decl. ¶ 9).
Responses to this Motion was due by June 9, 2021, and reply by June 16, 2021 (Docket No. 7). The parties made timely responses and replies (Docket Nos. 8, 9) and the Motion was deemed without oral argument.
In diversity cases, federal court applies substantive law of the jurisdiction where the Court sits, here of New York, see Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see Klaxon v. Stentor Elec. Mfg Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) (including state's choice of law regime); see also Giarcla v. Coca-Cola Co., No. 17CV359, 2021 WL 1110397, at *3-4 (W.D.N.Y. Mar. 23, 2021) (Skretny, J.). Under New York choice of law rules, “the first step in any case presenting a potential choice of law is to determine whether there is an actual conflict between the laws of the jurisdiction involved.” ...
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