The opinion of the court was delivered by: WEINFELD
WEINFELD, District Judge.
This is an action on behalf of three limited partnerships (hereafter called the Funds), engaged in exploiting oil and gas deposits, for an accounting and to recover moneys of which they allegedly were mulcted through a conspiracy engaged in by defendant Louis Kung and others, individuals and corporations, named as co-conspirators but not as defendants.
In broad terms, the complaint charges that Kung and the others conspired to cause the Funds to be organized and the investing public to purchase units therein; to arrange for each Fund to be managed by Oil & Gas Ventures, Inc., a Delaware corporation (hereafter called Ventures), as its sole general partner with authority to manage its affairs; and to gain control of the managing partner through Kung's agents and nominees, one of whom, Robert S. Carter, named as a co-conspirator, was designated as its president and, together with two other of Kung's nominees, constituted a majority of Ventures' board of directors. Plaintiffs further charge that Kung and his confederates, having thus gained control of Ventures, the managing partner, and through Ventures, of the Funds, caused the Funds to enter into a series of contracts, transactions and conveyances, principally with Cheyenne Oil Corporation (hereafter called Cheyenne), also named as a co-conspirator; that the purpose and effect of those transactions were to mulct and overreach the Funds in various ways; in short, that Cheyenne, also controlled by Kung, was the principal conduit through which the defendant achieved his purpose of defrauding the Funds.
The defendant has combined a series of motions, each of which will be considered separately.
The motion under Rule 12 to dismiss for lack of jurisdiction.
Federal jurisdiction is based upon diversity of citizenship. Each plaintiff Fund was organized in New Jersey, with its principal place of business there. Ventures, which brings this action on behalf of the Funds, is a Delaware corporation, with its principal place of business in New Jersey. Kung is and has been a resident of Houston, Texas since 1962. Personal service of process was made upon him there pursuant to Rule 4(e) of the Federal Rules of Civil Procedure in accordance with New York's "long-arm" statute, CPLR, sections 302 and 313. Section 302 of that Act provides:
"(a). Acts which are the basis of jurisdiction. A court may exercise personal jurisdiction over any nondomiciliary * * * as to a cause of action arising from any of the acts enumerated in this section, in the same manner as if he were a domiciliary of the state, if, in person or through an agent, he:
1. transacts any business within the state; or
2. commits a tortious act within the state * * *."
Plaintiffs contend that upon the facts here presented personal jurisdiction is warranted under either subdivision of section 302, whereas defendant, contending to the contrary, moves to dismiss. The contours of the jurisdictional reach and limitation of New York's long-arm statute are set forth in Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc.,
upon which each party relies for support. The teaching of that case is that under the business or the tort clause the power to subject nondomiciliaries to in personam jurisdiction rests upon purposeful acts or conduct within the state by the defendant or his agent which give rise to the cause of action sufficient to satisfy the minimal contact test.
The issue in each case is one of fact which "[varies] with the quality and nature of the defendant's activity * * *."
While the court does not pass upon the verity or the merits of the expansive charges contained in the complaint (which in the absence of denial by the defendant are deemed admitted for the purposes of this motion),
they are supported by affidavits and documents. They indicate Kung's presence in this city, where he conceived the conspiracy and developed plans for its execution at a series of meetings attended by him, his co-conspirators and his attorneys. The final meeting leading to the organization of the Funds also took place here and was participated in by him and the same group. Thereafter followed various acts from September 1957 to February 6, 1960, which it is charged were the means by which the Funds were defrauded. These included depriving the Funds of their rightful business opportunities; diverting moneys from them; causing them to pay fees when no services were rendered, and to pay excessive fees for services rendered; receiving kickbacks out of excessive sums paid by the Funds to third parties; converting properties of the Funds and obtaining, without consideration, substantial interests in their oil-producing wells. Many of these transactions were authorized, approved or consummated at the office of Ventures in New York City at meetings or conferences attend by Kung, who either directly or through his agents issued orders to Carter for the execution of agreements between the Funds and Cheyenne, which served to siphon off moneys and properties of the Funds in furtherance of the conspiratorial objective.
The plaintiffs also charge that on other occasions during the same period from September 1957 to February 1960 Kung, and at times other conspirators acting under his direction, control and domination, repeatedly conferred with Carter at Ventures' offices in New York City from which he, Kung, and his other confederates corresponded and communicated by telephone with his agents and co-conspirators at Wichita Falls and Dallas, Texas, all for the purpose of carrying out the conspiratorial objective of despoiling the Funds. Finally, the plaintiffs make the flat assertion that during the aforesaid period Kung spent at least ten days of each month in New York City, engaging in the above-mentioned activities.
Significantly, although Kung submitted an affidavit as to his citizenship and residence, he has denied neither his frequent presence in New York City, nor the activities then attributed to him. The averments here presented establish not only that the conspiracy originated in this city and state, but also that Kung's acts here in furtherance of its purpose to despoil the plaintiff Funds, however contrived, were persistent and regular, extending over a period of almost three years. The purposeful acts so ascribed to him and his agents
are more than sufficient to satisfy the test of minimal contacts within the state necessary to subject him to in personam jurisdiction. This is so whether the jurisdictional reach rests upon subdivision 1 or 2 of section 302(a) of New York's long-arm statute.
In the circumstances it is not unreasonable to require him to defend the suit which seeks to redress the alleged grievances.
Jurisdiction is not defeated, as the defendant contends, by reason of the fact that the agreements which were ordered to be entered into or executed in New York City related to the acquisition and development of oil and gas properties located in Texas, or were to be performed there or in other states; or that deeds executed here by the plaintiff Funds conveyed title to properties in other states - all of which are claimed acts in furtherance of the purpose to enrich Kung at the expense of the Funds. In personam jurisdiction rests upon the many acts committed within this state by the defendant, which gave rise to the asserted cause of action.
The defendant further contends that the failure to allege either that he was an officer or director of Ventures or the corporate conspirators, or that he was in a fiduciary relationship to the plaintiff Funds, precludes any basis for in personam jurisdiction. The answer to this contention is twofold. First, a fiduciary relationship may be grounded upon domination, which does not necessarily rest upon ownership of controlling stock of a corporation, nor upon official title or office.
Domination of a legal entity, whether its form be corporate or otherwise, is determined from all the facts, conduct and circumstances of a given situation.
It is the fact of control and not the particular means by which it is exercised which determines whether or not legal liability exists.
In the instant suit, domination and control are explicitly alleged. Second, it is not essential that one occupy a direct fiduciary relationship as a predicate to the imposition of liability based upon a claim of breach of duty. One who knowingly participates in or joins in an enterprise whereby a violation of a fiduciary obligation is effected is liable jointly and severally with the recreant fiduciary.
Even assuming Kung himself did not stand in a direct fiduciary relation to the plaintiffs, he is charged with having conspired knowingly with those who were their fiduciaries. The charge having been made, suit to enforce the claimed liability may properly be maintained in this court.
The motion to dismiss for lack of in personam jurisdiction is denied.
The motion to dismiss for lack of proper venue.
Kung, who is a citizen of the Republic of China and has been a resident of Texas since January 1962, next seeks to ...