Tax Club, Inc. v. Precision Corporate Servs., INDEX NO.: 114278/2010

• Decision Date: 25 October 2011
• Docket Number: INDEX NO.: 114278/2010
• Citation: 2011 NY Slip Op 32852
• Parties: THE TAX CLUB, INC. and MANHATTAN PROFESSIONAL GROUP, INC., Plaintiffs, v. PRECISION CORPORATE SERVICES, GARY ADAM CARROLL, ZACH OLSON, and KALE GOODMAN, Defendants.
• Court: New York Supreme Court

2011 NY Slip Op 32852

THE TAX CLUB, INC. and MANHATTANPROFESSIONAL GROUP, INC., Plaintiffs,

v. PRECISION CORPORATE SERVICES,GARY ADAM CARROLL, ZACH OLSON,and KALE GOODMAN, Defendants.

INDEX NO.: 114278/2010

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK:

DATED: October 14, 2011

DATED: October 25, 2011

JOAN A. MADDEN, J.:

Defendants Precision Corporate Services ("Precision"), Gary Adam Carroll ("Carroll"), Zach Olson ("Olson") and Kale Goodman ("Goodman") (collectively, "Defendants") move for an order dismissing the Amended Complaint pursuant to CPLR 3211(a)(1), 3211(a)(3), 3211(a)(7), 302 and 327(a), asserting that (i) plaintiff The Tax Club, Inc. ("Tax Club") lacks the capacity to sue, (ii) this court lacks personal jurisdiction over defendants, (ii) New York State is an inconvenient forum, and (iv) the complaint fails to state a cause of action. Plaintiffs oppose the motion, which is granted in part and denied in part.

BACKGROUND

Except when otherwise noted, the following facts are based on the allegations in the Amended Complaint, which must be accepted as true for the purposes of this motion.

Tax Club is a Utah corporation with a place of business in New York (Am. Compl. ¶ 1). Plaintiff Manhattan Professional Group, Inc. ("MPG") is a corporation organized pursuant to the laws of the State of New York (Am. Compl. ¶ 2). Defendant Precision is a Utah corporation with its principal place of business in Saint George, Utah (Am. Compl. ¶ 3). Defendants Carroll,Olson and Goodman are employees of Precision and are Utah domiciliaries (Am. Compl. ¶ 4-6).

Tax Club and MPG are sister corporations and have the same shareholders; they each provide tax services to small-sized and newly formed businesses, including tax preparation and strategies that are affordable to the small business owner (Am. Compl. ¶ 7-10). MPG also provides services with respect to business plans and websites (Am. Compl. ¶ 8). Defendant Precision allegedly offers similar services as Plaintiffs and is in competition with Plaintiffs (Am. Compl. ¶12). As part of their business models, Tax Club, MPG, and Precision acquire leads on potential clients from various so-called "Lead Providers." Precision engages some of the same Lead Providers that Plaintiffs engage, and some of the potential customers offered by the Lead Providers are given to both Plaintiffs and Precision (Am. Compl. ¶ 13-16). It can be inferred from the pleadings and supporting affidavits that the Plaintiffs and Precision actively solicit the potential customers, which results in the possibility of simultaneous solicitation of the same potential customers.

Plaintiffs allege that while MPG was soliciting a potential customer, Jason Verga, who is a New York resident, Precision was soliciting him as well (Am. Compl. ¶16-18). The pleadings are silent as to when these solicitations occurred, though Precision claims to have received the so-called "leads" with Mr. Verga's contact information on it on August 12, 2010 (Olson Aff, ¶ 14). Moreover, Defendants provide an engagement letter between Precision and Mr. Verga as evidence that Mr. Verga purchased a package of services from Precision on August 16, 2010 (Olson Aff. ¶¶ 15-16; Olson Aff., Ex. B). Therefore, it appears that while Mr. Verga was solicited by both MPG and Precision, Mr. Verga purchased services only from Precision, thereby becoming a Precision client on August 16, 2010.

On or about August 25, 2010, Precision sent a "client alert" email to several of its existing clients, including Mr. Verga, which is the source of the allegedly defamatory statementsat issue in this action (Olson Aff, ¶ 18). The email states as follows:

It has come to our attention that another company by the name of "Tax Club-My Essential Planning-Manhattan Professional Group-MCP-ICM-Premier Wealth" is aggressively soliciting unneeded services to some of our clients. In some curcumstances [sic] they are falsely stating that Precision Corporate Services has referred them, is associated with or is endorsing their services. To clarify, we Precision Corporate Services do not support or endorse the activity or services of "Tax CIub-Mv Essential Planning-Manhattan Professional Group-MCP-ICM-Premier Wealth." We do not conduct any business with them. If you are contacted by this company simply do not accept the call and if you do, please beware of the aggressive false tactics they employ. Am Comp. ¶ 23, Exhibit (emphasis in the original).

Defendants claim to have sent the email in response to various complaints Precision received from its clients regarding solicitation calls to them by Tax Club in which Tax Club claimed to be affiliated with Precision in some capacity (Olson Aff., ¶ 18). Particularly, Plaintiffs take issue with the following statements:

(1) MPG and/or Tax Club is soliciting "unneeded services to some of our clients"

(2) MPG and/or Tax Club "falsely stat[es] that Precision Corporate Services has referred them"

(3) MPG and/or Tax Club employs "aggressively false tactics"

Plaintiffs allege that as a result of these statements made to Mr. Verga and other potential clients they have lost potential business and the Defendants have injured their reputation in business, causing them to suffer damages.

This action was commenced on October 29,2010. Defendants moved to dismiss the original complaint; however they withdrew the motion after Plaintiffs filed an Amended Complaint on February 28, 2011. The Amended Complaint asserts causes of action for libel per se and interference with prospective business advantage. Defendants now move to dismiss theAmended Complaint, and Plaintiffs oppose the motion.

TAX CLUB'S CAPACITY TO SUE

Defendants first argue that the claims asserted by Tax Club must be dismissed as Tax Club lacks the capacity to sue under BCL §1312(a). Specifically, Defendants maintain that Tax Club is a foreign corporation doing business in the State of New York without authority, and BCL §1312(a) directly prohibits such a corporation from maintaining any action or special proceeding. Defendants point to the Amended Complaint f1, in which Tax Club is described as a "Utah [corporation] with a place of business at 350 Fifth Avenue, Suite 6015, New York, NY 10118," to establish that Tax Club is "doing business" in New York. They additionally point to the New York Department of State records which reflect that no entity called Tax Club is registered as either a domestic or foreign corporation licensed to do business in New York (Kochman Aff., Ex. B).

Plaintiffs acknowledge in their brief that Tax Club lacks capacity to sue in New York under BCL §1312(a). (Plaintiffs Memorandum of Law, p. 1, fn. 1). However, as the defamatory statements were made with respect to Tax Club and MPG, which is a New York corporation, Tax Club's lack of legal authority to sue does not provide a basis for dismissing the Amended Complaint. However, the claims asserted by Tax Club should be dismissed as there is no dispute that it is in violation of BCL §1312. Highfilh Inc. V. Bruce and Iris. Inc., 50 AD3d 742 (2d Dept 2008)(foreign corporation doing business in New York was barred from maintaining breach of contract action in New York based on its failure to obtain requisite authorization to do business in the state). Furthermore, plaintiffs do not indicate that they intend to cure the violation prior to the resolution of the action. Compare Horizon Bankcorp v. Pompee, 82 AD3d 935 (2d Dept 201 l)(denying motion to dismiss based on BCL § 1312 when plaintiff resolved any issue with respect to capacity by filing for and obtaining authority to do business inNew York); Uribe v. Merchants Bank of N.Y., 266 A.D.2d 21 (1st Dep't 1999)(a violation of BCL § 1312 can be cured during pendency of action).

Accordingly, the Amended Complaint is dismissed with respect to the claims asserted by Tax Club.

PERSONAL JURISDICTION

Defendants next argue that the Amended Complaint must be dismissed pursuant to CPLR 302(a) since the court lacks personal jurisdiction over the Defendants. Defendants claim that all of Precision's employees, documents and operations are located in Utah, and that Precision has no facility, office or bank account in the State of New York (Olson Aff., ]f 4-8). Additionally, they maintain that Plaintiffs have not included facts in the Amended Complaint that would provide a basis for personal jurisdiction, which is their burden. Teplin v, Manafort. 81 A.D.2d 531 (1st Dep't 1981).

Plaintiffs counter that personal jurisdiction exists over the Defendants under CPLR 301 and New York's long arm statute, CPLR 302(a)(1). Specifically, plaintiffs assert that Precision's interactive website which offers free tax consultation services to users who submit information about themselves and enables users to engage in "live chats" with Precision's representatives to obtain tax help and other services constitutes "doing business" in New York for the purposes of CPLR 301 and "transacting of business" under CPLR 302(a)(1). Plaintiffs also assert that Precision obtains revenues from New York residents such that Precision is "doing business" in New York. However, plaintiffs do not claim that products and services can be purchased using Precision's website.

Plaintiffs also argue that there is jurisdiction in New York based on Precision relationship with its client, Mr. Verga, who is a resident of New York. Precision claims to "promote constant communication between our clients" and their Tax Advisors (Ladd Aff, Ex.A). Plaintiffs also note that Mr. Verga had purchased a year of personal and business tax return preparation and unlimited tax consulting, among other things (Olson Aff., f15). Furthermore, they allege that the Client Alert email sent to Mr. Verga was part of the relationship between Precision and Mr. Verga

With respect to the individual defendants, Plaintiffs argue that they have "material ownership and management interests in Precision," and since they likely knew of or exerted control over...