Fantastic Graphics Inc. v. Hutchinson et al

Filing 50

ORDER granting 34 Motion to Dismiss the complaint for failure to properly allege personal jurisdiction over Defendants Stellar and Kough. The dismissal is without prejudice to replead. Plaintiff is granted thirty days from the date of this order in which to serve an amended complaint. Upon such service, Defendants may answer, or move to dismiss the amended complaint. So Ordered by Senior Judge Leonard D. Wexler on 2/22/2010. (Shields, Anne) Modified docket text on 2/23/2010 (Mahon, Cinthia).

UNITED STATES DISTRICT COURT FOR THE E A S T E R N DISTRICT OF NEW YORK - -- - - - - - - - -- - - - - - - - --- - - - - - - -- - - - - - - - -- - - - -- - -- - - -- - - - - - - - - - X FA N T A S T IC GRAPHICS INC, MEMORANDUM AND ORDER P la in tiff, --a ga in s t-C V -0 9 -2 5 1 4 (Wex ler, J.) LY N N E HUTCHINSON, STELLAR DESIGN GROUP LLC, TRACY J. KOUGH, and ROMAN SOKOLOV, D e f e n d a n ts . - -- - - - - - - - -- - - - - - - - --- - - - - - - -- - - - - - - - -- - - - -- - -- - - -- - - - - - - - - - X R U S K IN MOSCOU FALTISCHEK, P.C. B Y : KIMBERLY B. MALERBA, ESQ. JEFFR E Y M. SCHLOSSBERG, ESQ. E ast Tower, 15 th Floor 1 4 2 5 RXR Plaza U n io n d ale, New York 11556 A tto rn eys for Plaintiff LA W OFFICES OF BERNARD D'ORAZIO, P.C B Y : BERNARD D'ORAZIO, ESQ. 1 0 0 Lafayette Street-Suite 601 N ew York, New York 10013-4400 A tto rn eys for Defendants WE X LE R , District Judge:1 T h is is an action commenced by Plaintiff Fantastic Graphics, Inc. ("Fantastic Graphics" or th e "Plaintiff Company") against Defendants Lynne Hutchinson ("Hutchinson"), Stellar Design G ro u p , LLC ("Stellar or the "Defendant Company"), Tracey J. Kough ("Kough") and Roman S o ko lo v ("Sokolov") (collectively "Defendants"). Plaintiff alleges the existence of a deceitful

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The Court acknowledges the assistance of Michelle Azoulay, a student at Touro Law School, in the research and preparation of this opinion 1

conspiracy among the Defendants to destroy the business of Fantastic Graphics. The complaint co n tain s causes of action in breach of fiduciary duty, breach of contract, breach of the implied co v en an t of good faith and fair dealing, misappropriation of trade secrets, tortious interference with co n tract, tortious interference with business relations, unjust enrichment, and conversion. Presently before the court is the motion of two Defendants ­ Stellar and Kough, pursuant to Rule 1 2 (b )(2 ) and/or Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Rule 12(b)(2) seeks d ism issal for lack of personal jurisdiction, and the Rule 12(b)(6) motion seeks dismissal for failure to state a claim upon which relief can be granted. B A C KGR O U N D I. T h e Parties and the Allegations of the Complaint T h e following facts are drawn from Plaintiff's complaint and assumed, for the purpose of th is motion, to be true. Plaintiff Fantastic Graphics is in the business of providing web design and printing serv ices. It is was, at all relevant times, a New York corporation with its offices, and principal p lace of business in that state. Fantastic Graphics was started by Kathy Carlini ("Carlini") in 1988. C arlin i alleges that she worked hard over the years to develop, and grow the Plaintiff Company in to a well respected graphic design company. D efen d an ts are alleged to be associated with Stellar, a business that competes with Fan tastic Graphics. All Defendants are all residents of the State of New Jersey. Defendants H u tch in so n and Sokolov were both formerly associated with Fantastic Graphics. Hutchinson was an officer, and part owner of the business, and Sokolov was an employee since May of 2005. Hutchinson resigned from Fantastic Graphics in October 2006, and thereafter began work with S tellar. Defendant Kough is alleged to be employed by Stellar, but was never an employee of Fan tastic Graphics.

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The complaint contains highly detailed allegations regarding the business relationship b etw een Fantastic Graphics and Marotta Dental ("Marotta"), one of the company's largest clients. In view of the fact that the motion presently before the court is brought by Defendants Stellar and K o u gh , the court will not detail those allegations. Suffice it to say that the complaint alleges that w h ile still employed at Fantastic Graphics, Hutchinson used her position of trust to undermine the co m p an y's relationship with this customer, ultimately diverting that business to Stellar, H u tch in so n 's new business venture. By November 2006, Stellar is alleged to have taken all of Marotta's business away from Fan tastic Graphics, which resulted in a significant loss of revenue for Fantastic Graphics. Hutchinson is alleged to have lured defendant Sokolov to join her and Kough in the conspiracy again st Fantastic Graphics. II. T h e Motion D efen d an ts Kough and Stellar (the "Moving Defendants") move to dismiss for lack of p erso n al jurisdiction, and failure to state a claim upon which relief can be granted. Although the co m p lain t contains twelve causes of action, only four are directed toward the Moving Defendants. Those causes of action allege: (1) tortious interference with contract; (2) tortious interference with p ro sp ectiv e business advantage, (3) unjust enrichment, and (4) conversion. In support of the p erso n al jurisdiction motion, the Moving Defendants argue that personal jurisdiction exists neither p u rsu an t to New York's Long Arm Statute, nor the Due Process Clause of the Constitution. The R u le 12(b)(6) motion alleges that Plaintiff fails to set forth a plausible claim for any cause of action a lle ge d . DISCUSSION I P erso n al Jurisdiction: Legal Principles A district court may exercise jurisdiction over a defendant who would be subject to the ju risd ictio n of a court of general jurisdiction in the state in which the district court is located. Fed.

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R. Civ. P. 4(k)(1)(A). "In order to survive a motion to dismiss for lack of personal jurisdiction, a p lain tiff must make a prima facie showing that jurisdiction exists." See, e.g., Best Van Lines, Inc. v . Walker, 2007 WL 1815511 at *2 (2d Cir.2007), quoting, Thomas v. Ashcroft, 470 F.3d 491, 495 (2 d Cir.2006). Where, as here, the motion is made before discovery, all factual matters are to be reso lv ed in the light most favorable to plaintiff. E.g., Jazini v. Nissan Motor Co., Ltd., 148 F.3d 1 8 1 , 183 (2d Cir. 1998). If, but only if, jurisdiction is proper under state law must the court ad d ress whether the exercise of jurisdiction comports with Constitutional standards of due process u n d er the Fourteenth Amendment. Best Van Lines, 2007 WL 1815511 at *2. A. N ew York Law

Wh ile the complaint does not state the specific provision of New York law alleged to su p p o rt personal jurisdiction, Plaintiff's motion papers make clear that it alleges personal ju risd ictio n over the Moving Defendants pursuant to New York Civil Practice Law and Rules ("C P LR "), Section 302(a)(3) ("Section 302(a)(3)"). 1. Section 302(a)(3)

S ectio n 302(a)(3) provides for long arm jurisdiction over a non-domicilliary defendant w h ere the cause of action arises out of certain of defendant's activities, enumerated in the statu te. See CPLR §302(a). The statute provides for the exercise of jurisdiction over a d efen d an t who, "in person or through an agent," commits a tortious act outside of New York th at causes injury within New York. In addition, the defendant over whom jurisdiction is asserted must have engaged in activities supporting one of the two sets of statutory criteria set fo rth in subsections (I) or (ii) of Section 302(a)(3). As to subsection (I), jurisdiction is proper if, in addition to commission of the tortious act outside of New York with in-state consequence, the defendant either: (1) regularly does or co n d u cts business in New York, (2) engages in any other "persistent course of conduct" in New Y o rk, or (3) derives substantial revenue from goods used or services rendered in New York.

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As to subsection (ii), jurisdiction is proper, if, in addition to commission of the tortious act outside of New York with in-state consequence, the defendant: (1) expects or should reaso n ab ly expect his acts to have New York consequences and (2) derives "substantial rev en u e" from interstate or international commerce. N.Y.C.P.L.R. §302(a)(3)(i)(ii). II. Factu al Allegations in Complaint as to the Moving Defendants Wh ile the complaint contains highly detailed allegations as to Defendants Hutchinson an d Sokolov, the allegations as to the Moving Defendants are thin. They comprise only four p aragrap h s of the complaint's eighty-four factual paragraphs. Specifically, the complaint alleges: (1) that Stellar is a limited liability company formed in September of 2006 and o rgan ized under the laws of the State of New Jersey; (2) Stellar was Hutchinson's "new co m p an y;" (3) Kough is a resident of the State of New Jersey and (4) Stellar and Kough knew th at its customers were "wrongfully and unfairly misappropriated from Fantastic Graphics." The complaint contains no allegations concerning either the amount or source of the income of eith er of the Moving Defendants. III. D isp o sitio n of the Motion T h e court holds that the allegation that Fantastic Graphics suffered a business injury w h en it lost a valuable customer as a result of the Moving Defendants' participation in the alleged scheme, is sufficient to make a prima facie showing of the commission of a tortious act o u tsid e of New York, with consequence in the state. See Energy Brands, Inc. v, Spiritual B ran d s, Inc., 571 F. Supp.2d 458, 467 (S.D.N.Y. 2008)(the tortious act requirement is met by allegin g that the out-of-state act is the proximate cause of the New York injury). In light of this h o ld in g, the court turns to consider whether Plaintiff makes the showing necessary to support ju risd ictio n pursuant to either subsection (i) or (ii) of Section 302(a)(3). As noted, Plaintiff must plausibly allege, as to subsection i, that the Moving Defendants: · regu larly do or conduct business in New York, and

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en gage in any other "persistent course of conduct" in New York, or d eriv e substantial revenue from goods used or services rendered in New York. T h e complaint's limited factual allegations as to the Moving Defendants cannot support

a claim that these defendants regularly conduct business or engage in any "persistent course of co n d u ct" in New York. Jurisdiction pursuant to this section can therefore be found only if the co m p lain t can be read to plausibly allege that the Moving Defendants "derive substantial rev en u e from goods used or services rendered in New York." CPLR §302(a)(3)(i). A s to subsection (ii), Plaintiffs must plausibly allege that the Moving Defendants · · ex p ect or should reasonably expect their acts to have New York consequences, and d eriv e "substantial revenue" from interstate or international commerce.

N.Y.C.P.L.R. §302(a)(3)(ii). T h e test for determining whether a defendant "expects or should reasonably expect" his actio n s to have consequences in New York is objective, rather than subjective. Kernan v. KurzH astin gs, Inc., 175 F.3d 236, 241 (2d Cir. 1999). Additionally, the "reasonable expectation" req u irem en t under the New York long arm statute is interpreted in a manner consistent with S u p rem e Court precedent interpreting the requirements of the Due Process Clause of the United S tates Constitution. Kernan, 175 F.3d at 241; see Ivoclar Vivident, Inc. v. Ultident, Inc., 2005 WL 1421805 *5 (W.D.N.Y. 2005) (reasonable expectation foreseeability requirement intended to avoid conflict with due process limits on exercise of jurisdiction). Accordingly, more than fo reseein g that a defendant's product will make its way into New York is required. Instead, the D efen d an t must have made a "discernible effort to directly or indirectly serve the New York m arket." Id. (citation omitted). See also Tri-Coastal Design Group v. Merestone Merch., Inc., 2 0 0 6 WL 1167864 *4 (S.D.N.Y. 2006). Assuming the truth of the allegations as to the knowledge of Kough and Stellar regard in g the wrongful and unfair misappropriation of client information from Fantastic

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Graphics, the court holds that the complaint alleges adequately that these Defendants expect or sh o u ld reasonably have expected their acts to have New York consequences. This finding, h o w ev er, does not complete the jurisdictional picture. The questions remain whether the co m p lain t sufficiently alleges that the Moving Defendants either: (1) derive substantial revenue fro m goods used or services rendered in New York (to satisfy the pleading of jurisdiction under C P LR 302(a)(3)( i)) or (2) derive "substantial revenue" from interstate or international co m m erce (to satisfy the pleading of jurisdiction under subsection CPLR 302(a)(3)(ii)). As to th ese important elements, the complaint is silent. While Plaintiff has submitted affidavit ev id en ce in opposition to the motion, such evidence is not properly considered by the court in th e context of this motion to dismiss. When considering only the allegations of the complaint, as the court is required to do, it can n o t be said that Plaintiff has satisfied the revenue pleading requirements of either subsection o f Section 302(a)(3) of the CPLR. Accordingly, the court grants the motion to dismiss the co m p lain t for failure to properly allege personal jurisdiction over Defendants Stellar and Kough. The dismissal is without prejudice to replead. Plaintiff is granted thirty days from the date of th is order in which to serve an amended complaint. Upon such service, Defendants may an sw er, or move to dismiss the amended complaint. S O ORDERED ____________________________________ LE O N A R D D. WEXLER U N IT E D STATES DISTRICT JUDGE D ated : C en tral Islip, New York Feb ru ary 18, 2010

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