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CARROLTON ASSOCIATES ET AL. v. BERNARD ABRAMS ET AL. (07/18/68)

SUPREME COURT OF NEW YORK, TRIAL TERM, NEW YORK COUNTY 1968.NY.42678 <http://www.versuslaw.com>; 293 N.Y.S.2d 159; 57 Misc. 2d 617 July 18, 1968 CARROLTON ASSOCIATES ET AL., PLAINTIFFS,v.BERNARD ABRAMS ET AL., DEFENDANTS Simeon F. Gross, Elliot S. Gross and Samuel Brill for plaintiffs. Maxwell H. Goldstein for defendants. Matthew M. Levy, J. Author: Levy (I) The central entity in this case, although not a party litigant, is Towers Marts International, Inc. Towers had leased some 18 premises from various landlords in a number of States and established shopping centers or discount stores thereon. Towers then rented portions of the premises to various so-called "concessionaires", who conducted their respective specialty shops for the sale of separate types of merchandise in the Towers' stores and under the ostensible management and operation of Towers itself. As the controller in each retail store, Towers daily received the proceeds of the sales made by the concessionaires in that store. Then, acting as the over-all owner of all of the businesses, Towers centrally received all of the proceeds of all of the sales of all of the concessionaires in all of the stores. Towers would periodically pay the rent due for each store under its lease with the landlord, and, after deducting from the proceeds of the sales the agreed-upon percentage


Matthew M. Levy, J.

Author: Levy

(I)

The central entity in this case, although not a party litigant, is Towers Marts International, Inc. Towers had leased some 18 premises from various landlords in a number of States and established shopping centers or discount stores thereon. Towers then rented portions of the premises to various so-called "concessionaires", who conducted their respective specialty shops for the sale of separate types of merchandise in the Towers' stores and under the ostensible management and operation of Towers itself. As the controller in each retail store, Towers daily received the proceeds of the sales made by the concessionaires in that store. Then, acting as the over-all owner of all of the businesses, Towers centrally received all of the proceeds of all of the sales of all of the concessionaires in all of the stores. Towers would periodically pay the rent due for each store under its lease with the landlord, and, after deducting from the proceeds of the sales the agreed-upon percentage thereof to be retained by Towers, would remit the net balance to the appropriate concessionaire.

In January of 1963, Towers found itself in serious financial difficulties. The concessionaires were not receiving their shares of the sales and the landlords were not receiving their rents. The concessionaires reacted immediately. On February 4, a group of five trustees (the defendants Abrams, Rubin, Narva, Gelin and Jaffee), representing the concessionaires, entered into a written agreement in New York, with Towers and its 18 subsidiary operating centers, whereby the trustees assumed control of the cash receipts of each center or store, thereby hoping to insure that each concessionaire would receive his proper share of the cash register totals. In pursuance of the agreement, an account was set up in a New York bank (under the name of the Marts Concessionaires' Trustee Account), and Towers was to deposit each day's receipts from each of its stores in this account, and each week the trustees would pay Towers the net rent or commissions due from the concessionaires.

The next week, February 12, a general meeting of creditors was held in New York, at which landlords, concessionaires and Towers attended -- in some instances with the principals, representatives and attorneys as well. In an effort to fend off bankruptcy, Towers asked for time and capital. The creditors were dissatisfied with the Towers' management and expressed a lack of confidence therein. Several sessions were held. The plaintiffs allege that, at such meetings, a landlords' committee arranged with the defendants to pay a "new" rent. At first the rent payable was to be 4% of sales; later, $1 a square foot of occupied space. The intent was to treat all of the landlords on an equal basis. None of this was in a writing signed by the concessionaires or their trustees or the defendants or any of them. Subsequently, allegedly confirmatory letters were written by the landlord committee's secretary to the concessionaires' trustees. The general thought was that some written agreement would be executed shortly by all of the necessary parties.

Towers could not and did not pay any rents after the February meetings and it has since been adjudicated bankrupt. Some checks were paid to the landlords from the concessionaires' trustee account during February and March, 1963, but then such payments ceased. (It seems impossible, under the proof presented, to discover precisely on what basis these checks were issued.)

The plaintiffs in this suit are the landlords who had leased or subleased three of the several premises to Towers. The defendants (other than the defendant Margolis) are the persons who were the concessionaires' trustees, which individuals were connected with various companies operating departments within the Towers' stores. Recovery is sought from the defendants personally for the alleged balance of rents, taxes and ground rents claimed to be due the plaintiffs for the months of February and March, 1963, in pursuance of the asserted oral agreements between the defendants and the plaintiffs.

(II)

A preliminary issue of jurisdiction (raised by some of the defendants, but not briefed by counsel) must be disposed of before I proceed to a consideration of the basic facts and the substantive law applicable thereto.

The defendants Rubin and Jaffee are residents of and were served with process in New York and, of course, do not plead any objection to the in personam jurisdiction of the court over them. Of the three premises involved in this suit two are located in Maryland and one in Florida. The defendants Abrams, Margolis and Narva are residents of Connecticut, Massachusetts and Massachusetts, respectively, and were not served in New York; and they contest the jurisdiction of the court over their person, alleging in their answer that they have done no business in New York. (The remaining named defendant, Gelin, was not served with process and did not appear, and is not an actual party herein.)

CPLR 302, the so-called "long-arm statute", covers "Personal jurisdiction by acts of non-domiciliaries," and in subdvision (a) provides for "Acts which are the basis of jurisdiction". In 1963 (when the alleged causes of action arose) and in 1964 (when this suit was instituted) it was there provided that "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 of the state, if, in person or through an agent, he: 1. transacts any business within the state".

(III)

The events alleged in the complaint took place prior to and in February and March, 1963. The effective date of the CPLR was September 1, 1963. This action was instituted on April 1, 1964. CPLR 302 has been authoritatively held to apply to a suit instituted after its effective date, although based on a previously accrued cause of action. (Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 454; see 1 Weinstein-Korn-Miller, N. Y. Civ. Prac., par. 302.04.)

Also, in Longines-Wittnauer (p. 454), the Court of Appeals, relying on United States v. First Nat. City Bank (379 U.S. 378, 382), held that there is "no constitutional impediment to our construction giving retroactive effect to section 302, as indicated in Simonson [14 N.Y.2d 281], to the extent of applying it to a 'suit * * * instituted after the effective date of the statute' upon the basis of 'transactions occurring before the effective date'." (Emphasis in original). While there may be exceptional circumstances giving rise to constitutional questions, the Court of Appeals found none in Longines-Wittnauer, and I perceive none in the present case.

(IV)

I come now to the consideration of the question as to whether the nondomiciliary defendants did "transact any business" in this State within the meaning of CPLR 302 (subd. [a], par. 1).

As was indicated by the Court of Appeals in the case of McKee Elec. Co. v. Rauland-Borg Corp. (20 N.Y.2d 377, 381-382), "There is no fixed standard by which to measure the minimal contacts required to sustain jurisdiction under the provisions of CPLR 302 (subd. [a], par. 1)". In each case, the question is whether -- to use Professor Siegel's striking expression -- "the frontier was passed." (Siegel, Conflict of Laws, 19 Syracuse L. Rev., 235, 240.) I assume, of course, that the "frontier" referred to is not alone that the foreign defendant can be said to have crossed over, in some insubstantial fashion, the geographical borders of our State, but in what respects he has transversed, by way of domestic activities, the lines of differentiation established by the several decisions of the Supreme Court of the United States and the Court of Appeals of New York. And this is an appropriate time to note that, under the present statute, considerably less contacts within the State are required now than under the former "doing business" test. (See the corresponding provision in Illinois [Smith-Hurd Ill. Ann. Stat., ch. 110, ยง 17]; Haas v. Fancher Furniture Co., 156 F. Supp. 564 [D. C. Ill.].) In any case "the criteria * * * cannot be simply mechanical or quantitative. The test is not merely * * * whether the activity * * * is a little more or a little less. * * * Whether due process is satisfied must depend rather upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure." (International Shoe Co. v. Washington, 326 U.S. 310, 319.)

I would agree with the intimation by Professor McLaughlin, in his Practice Commentary on CPLR 302 (McKinney's Cons. Laws of N. Y., Book 7B, CPLR, p. 428) that, with the enactment of the long-arm statute, New York will "exploit the fullest jurisdictional potential permissible under federal constitutional restraint" (quoted in Fidelity & Cas. Co. of N. Y. v. Life Companies, 36 F. R. D. 267, 269; see McGee v. International Life Ins. Co., 355 U.S. 220, 224).

Jurisdiction there now is if the defendant can be said, as stated in McKee (supra), to have more than "infinitesimal" "contacts" here (20 N.Y.2d 377, 382) -- and to the extent, at least, of being able to determine on the facts that the cause of action upon which he is being sued has resulted from his having performed, as said in Hanson v. Denckla (357 U.S. 235, 253), "some act by which the defendant purposefully avails [himself] of the ...


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