Teague et al v. Lease Finance Group, LLC et al

Filing 59

MEMORANDUM OPINION & ORDER re: 37 MOTION to Dismiss Complaint. filed by Jason Moore, Merchant Services, Inc., Universal Merchant Services LLC, 39 MOTION to Strike Document No. 1 Class Allegations in Complaint. filed by Jason Moore , Merchant Services, Inc., Universal Merchant Services LLC. For the aforementioned reasons, defendant Merchant Services, Inc., Universal Card, Inc., and Jason Moore's motion to dismiss is GRANTED. The accompanying motion to strike plaintiffs� 39; class action allegations is DENIED AS MOOT. The Clerk of the Court is directed to terminate defendants Merchant Services, Inc., Universal Card, Inc., and Jason Moore. The Clerk of the Court is further directed to terminate the motions pending at Dkt. Nos. 37 and 39. (Signed by Judge Katherine B. Forrest on 5/30/2012) (djc)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

----------------------------------------X
ROBERT AVILA D/B/A CONSTANTINE
CREATIONS; AND MACHELLE SCHOMAKER D/B/A
THING-A-MA-JIGS, on behalf of themselves:
and all others similarly situated,
Plaintiffs,

USDCSDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
.
DATE

FILEMAY 3 02012

11 Civ. 8125 (KBF)
MEMORANDUM OPINION
& ORDER

-v-

LEASE FINANCE GROUP, LLC, et al.,
Defendants.

----------------------------------------x
KATHERINE B. FORREST, District Judge:
Plaintiffs Robert Avila and Machelle Schomaker bring this
purported class action against a number of defendants, asserting
claims for consumer and common law fraud, false advertising, and
breach of contract, among others, which arise out of purported
fraudulently induced contracts for merchant card processing
services.
Defendants Merchant Services, Inc., Universal Card, Inc.,
and Jason Moore (the "Merchant Defendants") have moved to
dismiss the complaint under Rule 12(b) (2) for lack of personal
jurisdiction and Rule 12(b) (6) for failure to state a claim or,
in the alternative, for a stay pending resolution of a parallel
action pending in the U.S. District Court for the Northern
District of California.

1

For the reasons set forth below, the Merchant Defendants'
motion to dismiss for lack of personal jurisdiction is GRANTED.
Accordingly, the Court does not consider the Merchant
Defendants' remaining arguments in support of dismissal.
FACTS 1
Plaintiff Avila is the only plaintiff with claims against
the Merchant Defendants.

(Compl.

(Dkt. No. 1) ~ 6; compare also

id. ~~ 6, 71-81 with id. ~~ 7, 82-103.)2

Plaintiff Avila asserts

that he "owns and runs a small business known as Constantine
Creations" which he has "maintained and operated" in "Covina,
California, at all times alleged in th[e] Complaint."

(Id.

~ 6.)

It is alleged that defendant Merchant Services Inc.
("Merchant") is a California corporation, with its principal
place of business there.

(Compl. ~ 1 7 . )

It is further alleged

that Merchant also operates under the name or does business as
Universal Merchant Services LLC ("Universal"), 3 which is also a
California corporation with its principal place of business
1 The facts recited herein relate only to the question of jurisdiction and do
not go to plaintiffs' substantive allegations since the Court does not
address the Rule 12(b) (6) arguments of Merchant Defendants' motion. Any
other facts recited herein are taken as true for purposes of this motion only
and are construed in the light most favorable to plaintiff.
2 Sarah Teague, one of the original plaintiffs in this action, voluntarily
dismissed her claims and withdrew as a class representative.
(Dkt. No. 49.)
3 According to the Merchant Defendants, Universal became the now-named
defendant Universal Card, Inc. "prior to the beginning of the putative class
period herein."
(Merchant Defs. Mem. of Law in Support of Their Mot. to
Dismiss or Stay (Dkt. No. 38) at 1 n.1)

2

there.

(Id.

~

18.)

Defendant Moore is alleged to be the

President, Chief Executive Officer ("CEO"), and majority
shareholder of both Merchant and Universal.

Id. ~ 19.)

The

Complaint also asserts that "Moore or one or more of the shell
companies he directs and controls" owns property at the same
locations as Merchant and Universal in California.
Plaintiff Avila alleges that a woman named Lisa, a
purported sales representative for Universal, whom Avila met
through a business group of which he was a member, arranged a
meeting with him regarding his credit card processing rates and
(Compl. ~ 71.)

certain services related thereto.

Avila then

purportedly signed what he understood was an application for
credit card processing along with a machine for that process.
(Id. ~ 72.)

It is alleged that the machine was delivered to

Avila "[s]everal days later"

(seemingly at his place of business

in California), at which time Lisa informed him he should
commence using it.

(Id. ~ 73.)

Avila then alleges that

starting in January 10, 2008 {with no indication as to the
proximity in time to his commencement of usage}, he was informed
on a number of occasions, or discovered, that he would be--or
already had been--charged fees and rates well in excess of those
represented to him.

(See generally id. ~~ 74-81.)

There is no

indication that any of the activities alleged in the Complaint

3

with respect to that transaction took place anywhere other than
in California. 4
DISCUSSION
A.

LEGAL STANDARD
Resolving jurisdictional questions requires a "two-part

analysis"--first

l

forum state

•

•

•

to "determine whether, under the laws of the
I

there is jurisdiction over the defendant,"

and second, if so, whether exercising jurisdiction comports with
federal due process.

Grand River Enters. Six Nations, Ltd. v.

Pryor, 425 F.3d 158, 165 (2d Cir. 2005).

The burden of

establishing jurisdiction over a defendant rests with the
plaintiff.

Hoffritz for Cutlery, Inc. v. Amjac, Ltd., 763 F.2d

55, 57 (2d Cir. 1985)

i

accord Gosain v. st. Bank of India, 414

Fed. Appx. 311, 314 (2d Cir. 2011).

Absent conducting an

evidentiary hearing or substantial discovery on the issue, a
plaintiff need only make a prima facie showing of jurisdiction-­
i. e., a showing of "legally sufficient allegations of

jurisdiction."

Whitaker v. Am. Telecasting, Inc., 261 F.3d 196,

208 (2d Cir. 2001) i see also Grand River, 425 F.3d at 165.

Such

a showing may be made through affidavits and other supporting
materials.

Id.; see also Gosain, 414 Fed. Appx. at 314.

Necessarily then, the court may consider materials outside the

4 Plaintiffs do not contend otherwise in their papers in opposition to the
Merchant Defendants' motion to dismiss.

4

pleadings in deciding questions of personal jurisdiction.
Sandoval v. Abaco Club, 507 F. Supp. 2d 312, 315 (S.D.N.Y.
2007).

In considering the materials submitted on a Rule

12(b) (2) motion, a court should, as on a Rule 12(b) (6) motion,
construe the pleadings and any submitted affidavits in the light
most favorable to the plaintiff and resolve all doubts in the
plaintiff's favor.

Whitaker, 261 F.3d at 208.

In diversity cases (via CAFA jurisdiction asserted here
see Compl. ~ 3)), the court addresses the question of personal
jurisdiction with reference to the laws of the forum state-­
here, New York.

See D.H. Blair & Co., Inc. v. Gottdiener, 462

F.3d 95, 104 (2d Cir. 2006).

New York law provides for personal

jurisdiction over nonresident individuals or corporations in two
instances, as set forth by its Civil Practice Law and Rules
("CPLR")

§§

CPLR

§

301 and 302 (a) (1) .
301 submits a nonresident party to personal

jurisdiction if it is "doing business" in the state.
C.P.L.R.

§

301j Wiwa v. Royal Dutch Petroleum Co.,

95 (2d Cir. 2000).

See N.Y.

226 F.3d 88,

The "doing business" standard that confers

"presence" in New York for jurisdictional purposes (irrespective
of whether the defendant has any New York contacts)

is met if

the defendant "does business in New York not occasionally or
casually, but with a fair measure of permanence and continuity."
Wiwa, 226 F.3d at 95.

Plaintiff bears the burden of
5

establishing that the defendant engaged in "continuous,
permanent, and substantial activity in New York.

II

Id.

(quotation marks and citations omitted) .
Factors weighing on the "continuity" or "permanence" of a
defendant's "doing business" in New York include whether the
defendant:

(a) maintains an office in New York;

accounts or property within the state;
within New York;

(b) has any bank

(c) has a phone listing

(d) does public relations work or solicits

business within the state; and (e) has employees or agents
permanently located in New York.

Wiwa, 226 F.3d at 98; see also

Landoil Res. Corp. v. Alexander & Alexander Servo Inc., 918 F.2d
1039, 1043 (2d Cir. 1990).

Neither solicitation nor the

presence of an office alone is dispositive of the defendant's
"doing business" in New York.

Landoil Res. Corp., 918 F.2d at

1043 ("[T)he solicitation of business alone will not justify a
finding of corporate presence in New York . . . "); In re
Rationis Enters., Inc., of Panama, 2671 F.3d 264, 270 (2d Cir.
2001)

("While a local office may constitute a 'continuous and

systematic' contact sufficient to allow a court to hold that a
defendant subject itself to the general jurisdiction of the
forum state, the presence of such an office is not dispositive."
(citations omitted)).

The court's determination of whether

jurisdiction lies "is necessarily fact sensitive because each

6

case is dependent upon its own particular circumstances."
Landoil Res. Corp., 918 F.2d at 1043.
CPLR

§

302(a) (1), New York's "long arm statute," provides

an alternate basis for the exercise of personal jurisdiction
over a nonresident individual or corporation.

Under the

statute, a nonresident party may be subject to jurisdiction if
(a) it "transacts any business within the state" and (b) the
cause of action arose out of that transaction of business.
§

302{a) (1); see also D.H. Blair, 462 F.3d at 104.

CPLR

"Physical

presence" is not the hallmark of "transacting business"; rather,
"as long as [a defendant] engages in purposeful activities or
volitional acts through which he avails himself of the privilege
of conducting activities within the State," a defendant has
"invok[ed] the benefits and protections of its laws" such that
he is subject to jurisdiction.

Chloe v. Queen Bee of Beverly

Hills, LLC, 616 F.3d 158, 169 (2d Cir. 2010)

(internal quotation

marks, citations, and alterations omitted); D.H. Blair, 462 F.3d
at 104.

But the statute is specific that jurisdiction may lie

only where there is a "'substantial nexus' between the
transaction of business and the claim."

D.H. Blair, 462 F.3d at

104.
B.

APPLICATION
It is evident from a comparison of the allegations against

the Merchant Defendants to the legal standard set forth above
7

that plaintiff Avila has failed to make out a prima facie case
of jurisdiction against the Merchant Defendants.

There is

nothing evidencing a "continuity" or "permanence" of "doing
business" in New York by any of the Merchant Defendants, nor
does the Complaint allege plausibly that any of the Merchant
Defendants are "transacting business" here or that the causes of
action asserted arose in New York.

See CPLR

§§

301, 302.

Plaintiffs seek to overcome that clear deficiency in two
ways.
First, they assert that they need have pleaded
facts establishing personal jurisdiction, but that the burden is
on defendants to affirmatively prove a lack of jurisdiction.
(PIs.' Br. in Opp'n to the Mot. of the Merchant Defs. to Dismiss
the Compl.

(Dkt. No. 45)

("PIs. Opp' n") at 6.)

misstatement of the law.

That is simply a

As set forth above, the burden of

establishing jurisdiction over the Merchant Defendants rests
squarely with plaintiffs.

See Hoffritz for Cutlery, Inc., 763

F.2d at 57 (cited in PIs. Opp'n at 7)

j

accord Gosain, 414 Fed.

Appx. at 314.
Second, plaintiffs submit that Merchant and Universal "have
been doing business in New York since at least 2006"--i.e.,
prior to Avila's alleged transaction in 2007.
7.)

(PIs. Opp'n at

Neither the facts nor the law supports plaintiffs'

contention in this regard.
8

Plaintiffs base that assertion on materials submitted in a
wholly related action--Gagasoules v. MBF Leasing, LLC, 08 Civ.
2409 (E.D.N.Y.).

(Id.)

In connection with that case, a

defendant there, MBF Leasing LLC ("MBF"), submitted a copy of
the lease entered into between plaintiff Gus Gagasoules and MBF
(the "Gagasoules Lease").
No. 47)

(See Decl. of Michelle M. Breit (Dkt.

("Breit Decl.") Ex. B ("Decl. of Sara Kreiger,

Gagasoules v. MBF Leasing, LLC, 08 Civ. 2409 (E.D.N.Y.)) at , 7;
Breit Decl. Ex. C (Gagasoules Lease).)

Plaintiffs contend that

because the Gagasoules Lease bears the footer
"MerchantServicesMBFstd 8/04," the Court should infer that MBF
and Merchant are one in the same and thus, that Merchant is
"continuous [ly] , permanent [ly] , and substantial [ly] " "doing
business" in New York.

(PIs. Opp'n at 7.)

However, plaintiffs

overlook that the address listed for "Merchant Services" on the
top of the Gagasoules Lease provides an address in Burr Ridge,
Illinois--not in California.

(See Breit Decl. Ex. C. at 1.)

Plaintiffs' statement that MBF and Merchant are the same is
simply insufficient to make it so.
As to Universal, plaintiffs state that because "UMS," the
"Equipment Supplier" on the Gagasoules Lease, is listed as
having the same address as defendants Universal and Merchant
here, that must mean that it is one of Merchant or Universal's
alter egos and thus, that Universal and Merchant were doing
9

business in New York because OMS was.

(PIs. Opp'n at 7-8.)

Plaintiffs go on to argue that because defendant Moore here is
the Present, CEO and majority shareholder of Merchant and
Universal, that the OMS link is enough for this Court to assert
jurisdiction over him here.

While the fact of the same address

does raise some questions (as does the interchangeability of the
use of Merchant Services and MBF on the Gagasoules Lease)-­
particularly in light of the severity of the allegations of
fraud asserted here, it is insufficient to establish "legally
sufficient allegations of jurisdiction."
at 208.

See Whitaker, 261 F.3d

For this Court, mere questions do not--and cannot-­

create a jurisdictional hook over three defendants.
Even assuming that the facts regarding the Gagasoules Lease
are true, that still would not form the basis for jurisdiction.
All the Gagasoules Lease demonstrates is that one transaction-­
in a wholly unrelated matter--occurred in New York.

That simply

does not meet the "continuous" or "permanent" contacts necessary
for personal jurisdiction under CPLR § 301(a), see Wiwa, 226
F.3d at 95, and or the "substantial nexus" between the
"transaction of business" and the claim in this action for
jurisdiction under CPLR

§

302, see D.H. Blair, 462 F.3d at 104. 5

5 It is true that New York's long-arm statute confers jurisdiction where there
was only a single transaction, but it only does so where there is "a
substantial relationship between the transaction and the claim asserted."
Newbro v. Freed, 337 F. Supp. 2d 428, 431 (S.D.N.Y. 2004).

10

Thus, plaintiff Avila has not met his burden of establishing a
prima facie case of jurisdiction over the Merchant Defendants in
this action, and the Court cannot allow this action to proceed
against them.
The Court finds, however, that dismissal of the Merchant
Defendants will not foreclose plaintiff Avila's avenue for
recourse against them.

As the Merchant Defendants assert--and

plaintiff Avila does not dispute--there is a parallel putative
class action proceeding in the Northern District of California
against the same defendants, in which Avila may be a class
member if a class is certified.

(Merchant Defs. Mem. of Law in

Support of Their Mot. to Dismiss or Stay (Dkt. No. 38) at 19-20,
22.)

Although plaintiff Avila--or his counsel--may prefer to

litigate his claims in this forum (see PIs. Opp'n at 14-15),
Avila has failed to make out the requisite basis for
jurisdiction allowing him to do SO.6
CONCLUSION
For the aforementioned reasons, defendant Merchant
Services, Inc., Universal Card, Inc., and Jason Moore's motion
to dismiss is GRANTED.

The accompanying motion to strike

plaintiffs' class action allegations is DENIED AS MOOT.

6 Plaintiffs' request for jurisdictional discovery is denied because plaintiff
has failed to make out a prima facie case that jurisdiction exists.
See Best
Van Lines Inc. v. Walker, 490 F.3d 239, 255 (2d Cir. 2007).

11

The Clerk of the Court is directed to terminate defendants
Merchant Services, Inc., Universal Card, Inc., and Jason Moore.
The Clerk of the Court is further directed to terminate the
motions pending at Dkt. Nos. 37 and 39.

SO ORDERED:
Dated: New York, New York
May 30 , 2012

Katherine B. Forrest

UNITED STATES DISTRICT JUDGE

12