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XEDIT CORP. v. HARVEL INDUS. CORP.

July 21, 1978

XEDIT CORPORATION, Plaintiff,
v.
HARVEL INDUSTRIES CORP., FIDELIPAC, a division of Harvel Industries Corp. and Daniel McCloskey, Defendants



The opinion of the court was delivered by: FRANKEL

MEMORANDUM

This action was commenced by Xedit Corporation against Harvel Industries Corp., Fidelipac, *fn1" a division of Harvel, and David McCloskey, general manager of Fidelipac, for unlawful misappropriation of trade secrets and unjust enrichment. Defendants have moved to dismiss on the ground that the court lacks personal jurisdiction over them.

 I.

 Xedit is a New York corporation. Defendant Harvel is a New Jersey corporation having its principal place of business in Wheeling, Illinois. Defendant Fidelipac is a New Jersey based product division of Harvel in the business of distributing electronic equipment to independent dealers for resale to radio stations throughout the United States. Harvel and its Fidelipac division are not authorized to transact business in New York and do not maintain an office, telephone, employee, or agent in New York. Defendant McCloskey is a resident of New Jersey who avers that he has "no contact with the State of New York at all except to visit New York from time to time to attend various trade shows and to visit certain vendors of Fidelipac."

 On November 1, 1976, McCloskey and Fidelipac's sales manager attended a trade show in New York City. There McCloskey met Claude Karczmer, president of Xedit, and discussed the possibility of Fidelipac's purchasing certain quantities of a drift and flutter meter that Xedit had on display. As a result of their meeting, *fn2" a sample unit was shipped to Fidelipac on November 15, 1976. Thereafter, discussions and negotiations were pursued by telephone and by mail concerning price, volume, and down payment terms. Xedit alleges that during this period, in approximately January 1977, the defendants were supplied "all important trade secrets," and that after negotiations were terminated in June 1977, the defendants misappropriated those secrets in order to produce their own flutter meter.

 It is undisputed that none of the defendants reentered New York to conduct negotiations after the trade show meeting.

 II.

 Plaintiff rests its claim for personal jurisdiction on New York CPLR ยง 302(a) (1), *fn3" which reads as follows:

 
"As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nondomiciliary, or his executor or administrator, who in person or through an agent:
 
"1. transacts any business within the state . . . ."

 A careful reading of the statute makes clear that it requires not only that the defendant "transact business" in the state, but that the cause of action "arise" from the business so transacted. Fontanetta v. American Board of Internal Medicine, 421 F.2d 355, 357 (2d Cir. 1970).

 Under New York law, interstate negotiations by telephone are not contacts that subject a defendant to jurisdiction at the instance of the New York party receiving the communication. Glassman v. Hyder, 23 N.Y.2d 354, 363, 296 N.Y.S.2d 783, 789-90, 244 N.E.2d 259 (1968). *fn4" Accordingly, both parties focus on the November 1, 1976, trade show meeting. Defendants argue that the meeting was too insubstantial to constitute transacting business within the state and that, in any event, the cause of action does not arise out of the defendants' New York acts. Plaintiff contends that the meeting fulfills both statutory requisites.

 This court is satisfied that the November 1, 1976, meeting constitutes transacting business within New York for the purposes of section 302(a)(1). This case does not pose an issue of statutory interpretation like that in Kramer v. Vogl, 17 N.Y.2d 27, 267 N.Y.S.2d 900, 215 N.E.2d 159 (1966), where the New York Court of Appeals considered whether the transacting business requirement was met by a nonresident who never entered New York but sent goods into the state pursuant to in-state orders. Here it is undisputed that Mr. McCloskey, as agent for the corporate defendants, physically entered the forum, met with the plaintiff, and discussed business. The real question is whether the cause of action for misappropriation of trade secrets can be said to have arisen out of this business transaction.

 The gravamen of the complaint, to repeat, is misappropriation of trade secrets. *fn5" The Restatement of the Law ...


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