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American Eutectic Welding Alloys Sales Co. v. Dytron Alloys Corp.

decided: March 18, 1971.

AMERICAN EUTECTIC WELDING ALLOYS SALES CO., INC., AND EUTECTIC CORPORATION, INC., PLAINTIFFS-APPELLANTS,
v.
DYTRON ALLOYS CORPORATION, RALPH O. KARSNER, JR. AND WILLIAM N. PRICE, DEFENDANTS-APPELLEES, AND KENNETH R. YOUNGBLOOD, DEFENDANT



Waterman, Moore and Feinberg, Circuit Judges.

Author: Feinberg

FEINBERG, Circuit Judge:

Once again we have the problem of predicting whether the courts of the State of New York would find jurisdiction over non-resident defendants under its "long-arm" statute, N.Y. CPLR § 302(a). The United States District Court for the Eastern District of New York, Walter Bruchhausen, J., held that they would not, quashing service of process and dismissing an action against defendant Dytron Alloys Corporation (Dytron) and two of its employees, Ralph O. Karsner, Jr., and William N. Price.*fn1 Plaintiffs American Eutectic Welding Alloys Sales Co., Inc. (American Eutectic) and Eutectic Corporation, Inc. (Eutectic) appeal from that order. For reasons set forth below, we reverse as to the individual defendants and affirm as to the corporate defendant.

I.

American Eutectic is the sales subsidiary of Eutectic; both are New York corporations. Eutectic manufactures metal welding rods and electrode alloys, grossing over $25 million in sales annually. American Eutectic employs over 350 sales personnel throughout the United States, including what the company calls Technical Representatives. The following is alleged in the complaint or supporting affidavits and therefore must be accepted as true for the purpose of this appeal from dismissal of the complaint. The individual defendants received an intensive three-month training course in New York, where plaintiffs' main offices are located. During that period, plaintiffs paid the salaries and living expenses of these defendants, who attended classes, received instruction in metallurgy and plaintiffs' specific welding techniques, and attended laboratory sessions. Each individual defendant signed an employment contract with American Eutectic, which provided that it would become binding upon American Eutectic "only after countersignature at our Home Office in Flushing, New York * * *. This agreement shall be deemed to be made under, and shall be governed by, the laws of the State of New York in all respects." They were then given various customer control cards, which contained the names of customers and their needs. This information was confidential and the individual defendants promised in the employment contract to keep it so. The contract assigned a particular territory outside of New York to the employee, who agreed that, if his employment ended, he would not work for two years thereafter for a competitor in the same territory. During their period of employment with plaintiffs, which was five and 13 years respectively, the individual defendants had continuous contact with New York by telephone with respect to orders and business problems. In addition, according to the affidavit of Eutectic's vice president, they "may have visited the home offices of the company many times."

The two individual defendants left plaintiffs' employ in the recent past and now work for defendant Dytron, a competitor of plaintiffs. Dytron, a Michigan corporation, is based in Detroit, and has sales in a number of states. The theory of the complaint is that Dytron induced plaintiffs' experienced sales employees to leave plaintiffs, come to Dytron, and use confidential information to woo away plaintiffs' customers. The complaint alleges that the two individual defendants are soliciting plaintiffs' customers in Kentucky and Pennsylvania. Dytron is also accused of competing unfairly in other respects. Against all defendants, plaintiffs seek equitable relief, including an injunction against the use or disclosure of the confidential information imparted to the individual defendants.

In the district court, defendants moved to quash the service of summons and to dismiss the action for lack of jurisdiction.*fn2 In support of the motion, the individual defendants allege that they live outside of New York State in the area where they work, that they were served in their state of residence, that they are not assigned any New York State territory, and that they have not been within New York State since beginning employment with Dytron. Their carefully drawn affidavits state that they have not committed any tortious act "within the State of New York," or any act "outside the State of New York that could be deemed to constitute a tortious act causing injury * * * within the State of New York," but do not otherwise deny the wrongdoings alleged. The corporate defendant submitted an affidavit from its president, which similarly emphasizes the jurisdictional facts; e. g., Dytron was served in Michigan; within New York there have been no sales (nor are any planned) and no advertising, although "on rare occasions" Dytron has advertised in one of the three national magazines that serve the welding industry; Dytron has no office, telephone listing, bank account "or any contact of any nature with or within the State of New York."

With the case in this posture, the district court granted the motions to quash service of process and to dismiss, holding that the execution of employment contracts in New York was insufficient to bestow jurisdiction and that there was no "substantial contact" with New York justifying invoking its long-arm statute.

II.

Plaintiffs' claim that there is jurisdiction over the individual defendants is based upon New York's long-arm statute, which provides in relevant part, N.Y. CPLR § 302(a) 1:

(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, * * * who in person or through an agent:

1. transacts any business within the state * * *.

The statute was an attempt to clarify and expand the situations in which the New York courts would take personal jurisdiction over non-resident defendants. See United States v. Montreal Trust Co., 358 F.2d 239, 242 (2d Cir.), cert. denied, 384 U.S. 919, 86 S. Ct. 1366, 16 L. Ed. 2d 440 (1966). While the statute has been liberally interpreted, whether jurisdiction exists under section 302(a) 1 can be a close question for the New York Court of Appeals. See McKee Electric Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 283 N.Y.S.2d 34, 229 N.E.2d 604 (1967) (4-3 decision). A federal court has the added difficulty of predicting what the New York courts would do on particular facts. However, in this case the answer seems fairly clear, at least as to the action against the individual defendants. The key question is whether they " transact[ed] any business within the state" within the meaning of section 302(a) 1, and the New York cases indicate that they did.

In Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 308 N.Y.S.2d 337, 340, 256 N.E.2d 506, 508 (1970), the New York Court of Appeals unanimously characterized "the situation where a defendant was physically present at the time the contract was made" as "the clearest sort of case in which our courts would have 302 jurisdiction." While it is not absolutely clear from the record before us that the employment contracts were signed by the individual defendants while they were present in New York, that apparently was the case. Indeed, the district judge seems to have made that assumption. Moreover, the evaluation leading up to the handing over of the control cards, the instructions regarding them, and the entire three-month training period for Technical Representatives all took place in New York. These were all "purposeful acts" participated in by the individual defendants "in this State in relation to the contract, albeit preliminary or subsequent to its execution." Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 261 ...


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