Water Energizers Ltd. v. Water Energizers, Inc.

• Citation: 788 F. Supp. 208
• Decision Date: 02 April 1992
• Docket Number: No. 91 Civ. 1234(PNL).,91 Civ. 1234(PNL).
• Parties: WATER ENERGIZERS LTD., Plaintiff, v. WATER ENERGIZERS, INC., Estate of Robert E. Harris, Ronald D. Harris, Lahna Harris, Rhonda Harris Frazier, Walter Edwards, and Robert E. Harris, Jr., Defendants.
• Court: U.S. District Court — Southern District of New York

788 F. Supp. 208

WATER ENERGIZERS LTD., Plaintiff, v. WATER ENERGIZERS, INC., Estate of Robert E. Harris, Ronald D. Harris, Lahna Harris, Rhonda Harris Frazier, Walter Edwards, and Robert E. Harris, Jr., Defendants.

No. 91 Civ. 1234(PNL).

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

April 2, 1992.

Pryor, Cashman, Sherman & Flynn (Donald S. Zakarin, Perry Amsellem, of counsel), New York City, for plaintiff.

Philip Furgang, New York City, Myer S. Tulkoss, Suffern, N.Y., for defendants.

OPINION AND ORDER

LEVAL, District Judge.

Defendants move to dismiss for lack of personal jurisdiction, pursuant to Fed. R.Civ.P. 12(b)(2), or to transfer pursuant to 28 U.S.C. § 1404(a) or dismiss pursuant to 28 U.S.C. § 1406(a) or the doctrine of forum non conveniens.

BACKGROUND

This is an action for breach of a franchise agreement, fraudulent inducement, and violations of various state statutes relating to franchise agreements. The following facts are uncontested or appear from the submissions of plaintiff.

Defendant Water Energizers, Inc. ("WEI") is a manufacturer and franchisor of a commercial water treatment system that is marketed as the "Water Energizer." WEI is owned and managed by members of the Robert E. Harris family. Plaintiff Water Energizers Ltd. ("WEL") is a franchisee of WEI for the marketing of the Water Energizer.

A Water Energizer consists of a brass tube filled with a compound of finely ground minerals, cellulose and a petroleum solvent. WEI's promotional literature claims that when the Water Energizer is properly installed in a boiler, heat exchanger, cooling tower, or other "water related equipment," it prevents scaling, corrosion and rust, removes already existing scale. WEI markets and leases the Water Energizer to the ultimate customers through its franchisees. WEI uses a standard franchise agreement which provides that a franchisee will pay WEI a set royalty payment for each Water Energizer the franchisee leases to a customer. Franchisees have the right to set lease prices to customers.

Robert E. Harris ("Robert Sr."), was the founder, CEO and president of WEI until his death in 1989. The complaint names his estate as a defendant. Three of Robert Sr.'s children, defendants Rhonda Harris Frazier ("Rhonda"), Ronald D. Harris ("Ronald"), and Lhana Harris Barnes ("Lhana") are officers of WEI. Defendant Robert E. Harris, Jr. ("Robert Jr."), another Robert Sr. offspring, has been hired at times by WEI as a consultant. Defendant Walter F. Edwards ("Edwards"), Robert Sr.'s brother-in-law, has also been hired by WEI at times as a consultant.

In February 1988, Lawrence Gerard, (who later founded and became president of plaintiff WEL), was approached by a business acquaintance, who owned a WEI subfranchise licensed by Water Energizer Technology ("WET"), a WEI franchise. The acquaintance sought Gerard's financial assistance in operating the subfranchise. In late February, Gerard contacted Robert Sr. at WEI's headquarters to verify that WET was a lawful franchise. During that telephone call, and in a subsequent conversation in March 1988, Robert Sr. described the Water Energizer and how WEI's franchise system operated. Robert Sr. informed Gerard which franchises were still available in the United States and offered to send Gerard more information. Following the conversation, Robert Sr. sent Gerard a brochure describing the Water Energizer, testimonials, and sample franchise agreements. Gerard and Robert Sr. began exchanging telephone calls between New York and Indiana on a regular basis to discuss franchise opportunities.

On April 6, 1988, Gerard visited WEI headquarters in Indiana to inspect the operation before making an investment. Gerard met with Robert Sr. to discuss their respective businesses.

In May 1988, Robert Sr. telephoned Gerard in New York on several occasions to discuss franchise opportunities. On May 9, 1988, Gerard returned to WEI headquarters in Indiana for a two-day visit to paying customer installations in Indiana and Kentucky in order to see installed Water Energizers at work. On May 11, 1988 and May 21, 1988, Robert Sr. made written offers to Gerard for the sale of Water Energizer franchises for Maryland, Washington D.C. and a portion of Pennsylvania. In late May or early June 1988, Robert Sr. met with Gerard, and his brother Mark Gerard, in Lawrence Gerard's New York office. At that meeting the parties negotiated and reached agreement on the essential terms of a franchise agreement covering Maryland and the District of Columbia.

Robert Sr. returned to Indiana and mailed a signed copy of a franchise agreement dated June 8, 1988, to Lawrence and Mark Gerard in New York, which they signed (the "Franchise Agreement"). An addendum to the Franchise Agreement set payment terms.

On June 8, 1988, the Gerards entered into an option contract with WEI for Water Energizer franchises in eighteen other states.

Sometime in June, 1988, Mark and Lawrence Gerard entered into an agreement with WEI, and Water Energizers, USA, Inc. ("WEUSA") whereby WEUSA, which held the franchise from WEI for the installation of Water Energizers in all United States government facilities, granted the Gerards the right to distribute Water Energizers to government facilities in the District of Columbia and adjacent territories. On June 29, 1988, the Gerards and WEI entered into a second addendum to the Franchise Agreement pertaining to certain indemnifications.

Subsequently, the Gerards formed WEL and assigned their right in the Franchise Agreement to WEL.

On July 5, 1988, WEL and WEI amended the Franchise Agreement to extend WEL's franchise rights to include the territory of California.

On February 1, 1989, WEI and WEL agreed to incorporate the Franchise Agreement, the addenda, the option agreement and the WEUSA agreement into a single document, and to make certain amendments to those agreements ("Amended Franchise Agreement"). The amendments included (i) designating Gerard Water Energizers Network, L.P. (the "Limited Partnership"), as the Franchisee and successor in interest to WEL, (ii) amendment of the territories under option, and (iii) an extension of the franchise to cover Nevada.

On September 19, 1989, the Amended Franchise Agreement was further amended to substitute WEL for the Limited Partnership as the franchisee.¹

Contacts between Lawrence Gerard and Robert Sr. concerning WEI's and WEL's operations continued with regularity up until the time of Robert Sr.'s death in February 1990. Thereafter, plaintiff allegedly had numerous dealings with Rhonda, Ronald, Lhana, Robert Jr., and Edwards, relating to business between WEL and WEI. The details of these events, which indicate a deteriorating business relationship between WEL and WEI, have no bearing on the court's determination of the pending motions. It is sufficient for present purposes to note that events ultimately led to WEL filing this suit in February 1991.

DISCUSSION

I. Personal Jurisdiction

A federal court sitting in diversity determines personal jurisdiction by reference to the law of the forum state. Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir.1963) (en banc). Although the plaintiff bears the ultimate burden of establishing personal jurisdiction over a defendant by a preponderance of the evidence, the plaintiff initially need make only a prima facie showing of jurisdiction through its own affidavits and supporting materials until an evidentiary hearing is held. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981). In the evaluation of this initial prima facie showing, the plaintiff's affidavits and pleadings are construed in the light most favorable to the plaintiff, and doubts are resolved in plaintiff's favor. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985).

Plaintiff contends that jurisdiction over the defendants exists under either N.Y.Civ.Prac.L. & R. ("CPLR") § 301 because defendants were "doing business" in New York, or under CPLR § 302(a)(1), because they were "transacting business" in New York, or under CPLR §§ 302(a)(2) — (3) because the defendants committed fraud and fraudulent concealment within New York, or outside New York but causing injuries within New York.

The court finds that plaintiff has failed to make even a prima facie showing of personal jurisdiction as to the Estate of Robert E. Harris under any section of the CPLR. Defendants show, and plaintiff does not deny, that the Estate of Robert E. Harris Sr. does not exist, having been wound up prior to service of this action. See Affidavit of Ronald D. Harris ¶ 34 (dated April 23, 1991). Existence is surely a necessary requisite for this court's exercise of personal jurisdiction. Cf. United States ex rel. Mayo v. Satan and his Staff, 54 F.R.D. 282 (W.D.Pa.1971) (questioning exercise of personal jurisdiction over Satan). Because the Estate of Robert E. Harris does not exist, the court finds that it lacks personal jurisdiction over it. Accordingly, the complaint is dismissed as to the Estate of Robert E. Harris, Sr.

Because the court finds, for the reasons to be discussed below, that the remainder of the action should be transferred to Indiana, it is not necessary to reach the question of the existence of personal jurisdiction over the remaining defendants.

II. Transfer Pursuant to 28 U.S.C. § 1404(a)

Section 1404(a) provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." This provision vests the district court with discretion "to adjudicate motions for transfer according to an `individualized, case-by-case consideration of convenience and fairness.'" Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 2244, 101 L.Ed.2d 22 (1988) (quoting Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 812, 11 L.Ed.2d 945 (1964)). As the moving party, de...