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FAIM INFORMATION SERVS. v. BORCHERT

June 4, 1975

FAIM INFORMATION SERVICES, INC., et al., Plaintiffs,
v.
William G. BORCHERT et al., Defendants


Robert L. Carter, District Judge.


The opinion of the court was delivered by: CARTER

ROBERT L. CARTER, District Judge.

On September 4, 1973, an opinion was issued in this case, CCH Fed.Sec.L.Rep. [1973 Transfer Binder] P 94,137 (S.D.N.Y.1973) (Faim I), dismissing several of eighteen named defendants for lack of personal and subject matter jurisdiction. Plaintiffs, Faim Information Services, Inc. ("Faim"), W. G. Borchert Associates, Inc. ("Associates"), and Vernon Pope, Inc. ("Pope"), pursuant to Rules 54(b) and 60(b)(1) and (6) of the F.R.Civ.P., seek to have this court reconsider the earlier opinion and reinstate the dismissed defendants. The latter group, naturally, oppose the motion. In addition, several of the remaining defendants move to dismiss the complaint, or alternatively, for summary judgment, and they also oppose reconsideration.

 Background

 The complaint states three federal securities claims based on an apparent contract between William Borchert ("Borchert"), president, chairman of the board and chief executive officer of Associates, and Faim by which Faim agreed to purchase Associates. These claims allege that Borchert and others, in order to induce Faim and Associates to enter into the contract, made untrue statements of material fact and failed to reveal certain other material facts. The remainder of the complaint, claims fourth through twelfth, allege violations of state law over which this court purportedly has pendent jurisdiction. These claims reassert the factual allegations of the first three claims but seek recovery under state law and additionally set forth a different set of facts which relate to the manner in which the contract was executed.

 The eighteen named defendants are Borchert, directors and stockholders of Associates prior to the acquisition, key employees of plaintiffs after the acquisition by Faim, and other business entities having connections with certain of the previously-named individual defendants. The dismissed defendant Harper Sibley, Jr. ("Sibley") was a member of the board of Associates who, it was alleged, "together with Borchert, dominated and controlled its activities." Complaint, para. 4. Sibley's dismissal resulted from the absence of personal jurisdiction: he was a resident of Florida, he had no residence or business interests in New York State, and he was served with a summons and complaint in Florida. The notion was rejected that service was proper as to Sibley under New York's long-arm statute, CPLR ยง 302(a)(1) and (2), because Borchert acted as an agent for Sibley in making the contract with Faim, a New York corporation.

 As stated in the first opinion, at 94,580-81, the rule in New York is that an out-of-state principal must exercise "domination and control" over the in-state agent in order for the principal to be subject to the jurisdiction of New York courts. Stark v. Spitz, 38 A.D.2d 966, 331 N.Y.S.2d 709 (2d Dep't 1972); Hodom v. Stearns, 32 A.D.2d 234, 301 N.Y.S.2d 146 (4th Dep't), appeal dismissed, 25 N.Y.2d 722, 307 N.Y.S.2d 225, 255 N.E.2d 564 (1969); Legros v. Irving, 77 Misc.2d 497, 354 N.Y.S.2d 47 (Sup.Ct.1973); Marsh v. Kitchen, 480 F.2d 1270 (2d Cir. 1973). No agency is inferable merely from the positions Sibley and Borchert held on the board. Faim I, supra, at 94,581; cf. Ferrante Equipment Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280, 283, 309 N.Y.S.2d 913, 916, 258 N.E.2d 202 (1970); Bird v. Computer Technology, Inc., 364 F. Supp. 1336, 1340-41 (S.D.N.Y.1973).

 The remaining dismissals of Sidney Shore ("Shore"), Sidney Gross ("Gross"), Sidney Shore, Inc. ("Shore, Inc."), Gross and Associates Public Relations, Inc. ("Gross, Inc.") and Conant & Co. Public Relations Inc. ("Conant") followed the determination that there was an insufficient nexus between the state claims in which these defendants were named and the federal claims over which this court has subject matter jurisdiction. Further, even if plaintiffs' "strained factual recitation" were deemed to satisfy the nexus requirement, I chose not to exercise the discretionary power of pendent jurisdiction in that case.

 The Reconsideration Motion

 Plaintiffs' motion may only proceed, if at all, pursuant to Rule 54(b) of the F.R.Civ.P. *fn1" Rule 54(b) is without limitation as to the grounds for revision; a district court may exercise this power when it is "consonant with justice to do so." United States v. Jerry, 487 F.2d 600, 605 (3d Cir. 1973); John Simmons Co. v. Grier Brothers Co., 258 U.S. 82, 90-91, 42 S. Ct. 196, 66 L. Ed. 475 (1922). Guidelines have qualified this broad rubric, however. A substantial issue must be raised for reconsideration which has been raised before, and "this will occur when the issue is one about which there is a high degree of disagreement. It can occur when a party presents new facts to be considered which were not raised in prior decisions or points to new decisional law not originally considered." Nakhleh v. Chemical Construction Corp., 366 F. Supp. 1221, 1223 (S.D.N.Y.1973); see Perth Amboy National Bank v. Brodsky, 185 F. Supp. 219, 221 (S.D.N.Y.1960).

 Plaintiffs contend that their former counsel failed to allege or brief a "direct sale" of Sibley's stock in Associates to Faim; such "fact" of a direct sale would ostensibly make service on Sibley sufficient to confer jurisdiction upon this court. Contrary to this assertion, plaintiffs' counsel did brief the point. In their Memorandum in Opposition to Sibley's motion to dismiss, plaintiffs stated at 2:

 
"Defendant Sibley's memorandum incorrectly stated that, 'there are two separate and distinct transactions.' The fact is that Faim acquired Associates in a single transaction. While as a matter of form there was a sale to Faim by Borchert and a redemption by Associates from the other stockholders, all of the transactions were negotiated as a whole, were consummated on the same day, at the same time, at the same place, and none would have been consummated but for the consummation of the others. Sibley accepted consideration directly from Faim in the form of 2500 warrants. It cannot possibly be said that he is involved solely in the redemption and not in the balance of the transaction."

 Because the redemption of the Associates shares and the Borchert-Faim sale were separated by time, plaintiffs proceeded on an agency theory, specifically considered and rejected in Faim I, supra, at 94,581.

 Moreover, the Acquisition Agreement, annexed to the complaint as Exhibit A, and the affidavits submitted by the board members and sole shareholders of Associates plainly show that there was no contemplation of a direct sale. The purchase agreement was solely between Faim and Borchert; neither Sibley nor the rest of the Associates directors were parties to the agreement, and no one, save Borchert, sold any shares to Faim. See affidavits of Doerge, Herzog, Gilligan, and Borchert. Borchert never represented to Faim that he spoke for the remainder of the board or for the other shareholders, Borchert affidavit, para. 5, and Faim itself must have been aware of this, for the agreement was expressly contingent on Borchert successfully persuading the board to redeem the outstanding shares held by everyone other than Borchert. The actual redemption occurred a week before the sale of Borchert's shares, which commanded a price that was 400% over that paid for the redeemed shares. *fn2"

 Two recent cases cited by plaintiffs in support of the reinstatement of Sibley as a defendant are inapposite. One, Barr v. Wackman, 36 N.Y.2d 371, 368 N.Y.S.2d 497, 329 N.E.2d 180 (1975), is totally irrelevant, dealing only with the issue of whether a shareholder bringing a derivative action against a public corporation must first make a formal demand on the board where the alleged wrongdoers control a majority of the directors. The second, Sterling National Bank and Trust Co. v. Fidelity Mortgage Investors, 510 F.2d 870 (2d Cir. 1975), considered the following acts: a loan was executed between a New York bank and a non-domiciliary trust; the loan was credited to the trust's account in the bank, where a compensating balance was maintained; later the loan was transferred to an account maintained by the trust in another New York bank; a promissory note executed by the non-domiciliary, the subject of the action, was made payable in New York; and finally, there was a visit by the vice-president of the trust to the officers of the bank in New York. The Court of Appeals found, looking at the totality of the trust's activities in New York, purposeful acts ...


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