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Lehigh Valley Industries Inc. v. Birenbaum

decided: November 28, 1975.


Appeal from a final order of the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., Judge, granting defendant Norman Birenbaum's motion to dismiss the complaint against him for lack of personal jurisdiction.

Mulligan, Oakes and Meskill, Circuit Judges.

Author: Mulligan

MULLIGAN, Circuit Judge:

This diversity action was commenced in the United States District Court, Southern District of New York, by plaintiffs Lehigh Valley Industries, Inc. (Lehigh) and its subsidiary Lehigh Colonial Corporation (Colonial), both Delaware corporations with principal places of business in New York. The plaintiff corporations are successors in interest to Colonial Shoe Ornament, Inc. (Ornament), a Massachusetts corporation since dissolved. The defendants are David Birenbaum (David), his brother Norman Birenbaum (Norman) and two foreign (Spanish) corporations, Lydia, S.A. (Lydia) and International David, S.A. (International). The defendant Norman, a Massachusetts resident, was served in Massachusetts on February 15, 1974; on May 6, 1974 he moved to dismiss the complaint pursuant to Rule 12(b)(2) for lack of personal jurisdiction. By a memorandum and order dated January 29, 1975 District Judge Charles E. Stewart, Jr. granted Norman's motion to dismiss; that opinion is reported in 389 F. Supp. 798 (S.D.N.Y. 1975). By order dated May 2, 1975 Judge Stewart made his decision and order a final order permitting this appeal pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. The order is hereby affirmed.

I Facts

The complaint alleged that Norman and David were the principal owners of seven Massachusetts corporations which were engaged in various aspects of the shoe business. In 1968 they sold their stock in these corporations to Lehigh through Colonial, its wholly owned subsidiary. The terms of the agreement are set forth in an instrument entitled "Reorganization Agreement," dated July 19, 1968. As part of the deal David and Norman were retained as chief operating officers of Ornament and separate contracts of employment were executed on October 18, 1968. Norman signed his contract in Massachusetts. The complaint alleges inter alia that Norman breached his employment contract by failing to devote his full time, skill and attention to the affairs of Ornament; that Norman diverted business opportunities of Ornament to his own use; that Norman failed to bring to the attention of plaintiffs' or Ornament's directors the egregious conduct of David; that he conspired with David to destroy the business of Ornament; and that he induced Ornament to abandon its leather stripping line of business and then established his own business, Louran Corporation (Louran), which took over former customers of Ornament.

It is not disputed that Norman is not now transacting business in New York and does not reside here. He has no real or personal property in New York. Norman's employment at Ornament was in Haverhill, Massachusetts which was the sole place of business of that now-defunct corporation. The question of in personam jurisdiction of New York is governed by the New York "long arm" statute, N.Y.C.P.L.R. ยง 302 (CPLR).*fn1 The sections depended upon for jurisdiction for each of the claims made are set forth in the margin.*fn2

II Section 302(a)(1) -- Transaction of business in New York

The plaintiffs urge that three of their claims arise out of the transaction of business within the State of New York. These claims are for breach of the employment contract, breach of fiduciary duty and misappropriation of a business opportunity (Claims Third, Sixth and Eighth). The transaction of business relied upon was David's presence in New York as Norman's agent to negotiate the contract of employment which Norman executed in Massachusetts and which was to be performed in that state. The court below found that even assuming the agency,*fn3 this activity did not constitute the transaction of business sufficient to meet the statutory test. We agree.

Appellants urge that David was present in New York City at the offices of Lehigh over a substantial but unspecified period of time to negotiate the sale of Ornament to Lehigh. The result was the execution of the Reorganization Agreement of July 19, 1968, a complicated transaction by which all of Ornament's shares were acquired by Colonial, Lehigh's wholly owned subsidiary. It is not claimed that David negotiated this transaction as Norman's agent. It is not even alleged that this agreement was breached. In fact, a dispute arose among the parties concerning its registration provisions and David and Norman brought an action in the United States District Court for the District of Massachusetts seeking damages for breach of the Reorganization Agreement. That litigation was terminated by a Settlement Agreement entered into on March 6, 1972. It is alleged that Norman was present in New York on several occasions to participate in the negotiations leading to the settlement. However, the Settlement Agreement specifically provided:

It is hereby mutually covenanted and agreed by and between Lehigh Valley, Lehigh Colonial, and the Colonial Companies (together called the "corporations") and the Stockholders, for themselves and their respective heirs, successors and assigns that the corporations do hereby release and discharge the Stockholders and that the Stockholders each do hereby release and discharge the corporations, of and from any and all claims, liabilities or rights of action of any nature whatsoever arising out of events prior to the date hereof [March 6, 1972], whether or not now known, suspected or claimed which any of the corporations now has or ever has had against any of the Stockholders, or which any of the Stockholders now has or ever has had against any of the corporations.

Inasmuch as Norman and David were released from any and all liabilities or rights of action of any nature whatsoever rising out of events prior to March 6, 1972, it is difficult to see how the appellants can predicate jurisdiction in New York on any activity prior to that date. At least they recognize that the negotiation of the Reorganization Agreement can provide no basis for such presence. Appellants therefore have been compelled to rely upon David's presence allegedly as Norman's agent to negotiate the employment contract which survived the Settlement Agreement and which is the basis for the breach of contract and the breach of fiduciary duties claims here made.

We note that Norman's affidavit categorically denies that David acted as his agent. But even assuming arguendo that he did, the thesis does not result in the transaction of business in the State of New York for section 302 purposes. The mere fact that Norman executed the contract in Massachusetts is not necessarily fatal to appellant's claim, Galgay v. Bulletin Co., supra, 504 F.2d at 1064. The fact that the contract was to be performed in Massachusetts by Norman is of greater significance (see McLaughlin, supra, at 77 (McKinney 1972)), but would not preclude a finding of meaningful presence in New York if there were substantial negotiations in that state leading to its execution. Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y. 2d 443, 457, 209 N.E. 2d 68, 75-76, 261 N.Y.S. 2d 8, 19, cert. denied, 382 U.S. 905, 86 S. Ct. 241, 15 L. Ed. 2d 158 (1965); Liquid Carriers Corp. v. American Marine Corp., 375 F.2d 951, 956 (2d Cir. 1967).

The record before us establishes that the New York-based negotiation of the employment contract could not possibly have been substantial. Aside from the conclusory allegations of the complaint, the only affidavit submitted by appellants in opposition to the motion to dismiss for lack of ...

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