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KRAUSE v. HAUSER

May 12, 1967

Arthur KRAUSE, Linda J. Krause, Sol Gorrelick, Esther Gorrelick, Annie Krause, Lillian Bershader, Irving Saidlower and Esther Saidlower, Plaintiffs,
v.
Joseph HAUSER and Stanley F. Goldman, Defendants


Mishler, District Judge.


The opinion of the court was delivered by: MISHLER

MISHLER, District Judge.

In this action, the plaintiffs seek to have transfers of certain stock and leaseholds declared null and void, and for an accounting, on the grounds that the transactions constituted self-dealing in violation of the defendants' fiduciary obligations. The plaintiffs, all of whom are New York residents, are limited partners in Joseph Hauser Associates (Associates), and the defendants, both of whom are Connecticut residents, are the general partners. Jurisdiction is based upon diversity of citizenship.

 Only one of the defendants, Joseph Hauser, has been served, however, and he now moves under Rule 12(b)(2) of the Federal Rules of Civil Procedure to dismiss the complaint for lack of personal jurisdiction, claiming that the service of the summons and complaint upon him in Connecticut was ineffective. The plaintiffs, in turn, rely upon sections 302(a) and 313 of New York's CPLR. The court held a hearing on the jurisdictional issues, and the undisputed facts are as follows:

 In 1960, the defendants were operating a discount department store in Wallingford, Connecticut as a corporate entity, Very Best, Inc. (Very Best), and had plans to open another store in Torrington. Accordingly, they entered into an agreement with Emil Green, Joseph Abrams, Sidney Heller and Frank Zuckerbrot to form Associates, a limited partnership under the laws of Connecticut. It was decided that the defendants would contribute their stock interests in Very Best, and would be the general partners in the new venture, while the others would contribute, or raise through friends and associates, the sum of $150,000.00, and would participate as limited partners.

 Funds for the new venture were solicited in New York by Zuckerbrot, a member of the New York bar, with offices in New York City. The plaintiffs purchased their interests in New York, and actually signed the partnership agreements in Zuckerbrot's office. Moreover, they also signed a certificate of limited partnership, required by Connecticut law, in that office.

 In March, 1961, Associates mailed letters over Hauser's signature "To All Participants," including the plaintiffs, which solicited additional funds for expanded partnership operations at two new locations - Utica and Rome, New York. Arthur Krause, one of the plaintiffs, made an additional contribution of $6,000, paid in two checks which were drawn on a New York bank and transmitted to Connecticut. Thereafter, Associates acquired leases for the Utica and Rome sites, and the certificate of limited partnership was amended to include the general real estate business as one of the partnership's activities. The plaintiffs signed the amended certificate in Zuckerbrot's office.

 During 1961 and 1962, Very Best and Associates maintained a bank account in New York City, and the former also had a buying office at 128 West 30th Street. Hauser regularly came to New York to inspect both the Rome store and the buying office, and visited Zuckerbrot on company business on several occasions. Their business discussions concerned, in part, the solicitation of funds for Associates' contemplated expansion.

 The plaintiffs allege that subsequently the defendants organized a corporation known as Stars of New York, Inc. (Stars), to which they transferred Associates' assets in return for 55,000 shares of common stock and 82,500 shares of cumulative preferred stock of Stars. The plaintiffs further allege that the defendants then sold another 7,000 shares of common stock in Stars to certain third parties, and then caused Stars to issue an additional 160,000 shares of common stock, each defendant getting 55,400 shares, and the balance going to third parties. These are the transactions which form the basis of the complaint.

 After the above transfers, in a letter dated March 9, 1964, Hauser, acting as a general partner in Associates, called a meeting of all the limited partners at the Wellington Hotel in New York City for the purpose of reporting on Star's financial condition. At that time, the partnership's sole asset was its stock interest in Stars, a Delaware corporation having its principal place of business in Connecticut.

 Effect of Service

 Rule 4(d)(7) of the Federal Rules of Civil Procedure permits a litigant to serve his summons and complaint "* * * in the manner prescribed by the law of the state in which the service is made * * * in an action brought in the courts of general jurisdiction of that state." In this action, the plaintiffs assert that personal jurisdiction has been secured over Hauser through the utilization of sections 302 and 313 of the CPLR. *fn1" The pertinent provisions of section 302 read as follows:

 
(a) Acts which are the basis of jurisdiction.
 
A court may exercise personal jurisdiction over any non-domiciliary * * * 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 ...

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