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DOGAN v. HARBERT CONSTR. CORP.

October 20, 1980

Dr. Ulvi A. DOGAN and Sado & Dogan, Inc., Plaintiffs,
v.
HARBERT CONSTRUCTION CORPORATION, Defendant



The opinion of the court was delivered by: DUFFY

Plaintiffs, Dr. Ulvi A. Dogan (hereinafter "Dogan") and Sado & Dogan, Inc. (hereinafter "SADO") seek damages for the alleged breach of two exclusive agency agreements entered into with the defendant, Harbert Construction Corporation (hereinafter referred to as "Harbert"). The defendant has moved pursuant to Rule 12(b)(2) and (5) of the Federal Rules of Civil Procedure for an order quashing service of process and dismissing the complaint on the grounds that this court lacks personal jurisdiction over the defendant and that the process purportedly served on defendant was insufficient. The plaintiffs have in turn cross-moved to amend their original complaint under Rule 15 of the Federal Rules of Civil Procedure to include claims for breach of a third agency contract between the parties.

I

The defendant Harbert, an Alabama corporation with its principal place of business in Birmingham, Alabama, engages in heavy construction work in the Middle East and elsewhere around the world. Harbert does not have any offices in New York. One of Harbert's present activities includes participation in a joint venture to build an airbase in Israel's Negev Desert. This joint venture, called the Negev Airbase Constructors (hereinafter "NAC") is composed of four companies which brought different areas of expertise to the project. Harbert has a 28% interest in this consortium which is presently based in Tel Aviv and has an office in New York City. Prior to the commencement of this action, Harbert had loaned certain of its employees with purchasing experience to NAC and they were employed by NAC in performing purchasing functions. (Harbert Affidavit P 8). Bill Harbert (hereinafter "Mr. Harbert"), the president of Harbert Construction Corporation, has met with NAC officials in New York City on more than one occasion for the purpose of keeping informed as to the progress of the joint venture. (Id. P 5).

 During 1976, Harbert became interested in obtaining construction contracts in Saudi Arabia. To that end, Harbert entered into an agreement in February, 1976, with the plaintiff SADO whereby SADO would assist Harbert in obtaining private and government projects in Saudi Arabia for a fee. SADO is a Delaware corporation with its principal place of business in Larchmont, New York. It is wholly owned by Dr. Ulvi Dogan, who is also the president and chief executive officer. The contract was executed by Mr. Harbert and Dr. Dogan in Riyadh, Saudi Arabia. (Defendant's Memorandum in Support of Motion to Dismiss at p. 4; Plaintiff's Complaint P 101. A provision in this contract stated the agreement would be governed by the laws of New York (Ex. A, Complaint, p. 2).

 In April, 1976, Dogan, as agent for Harbert, contracted for the services of a consulting firm located in Saudi Arabia. The consulting firm was to perform services solely in Saudi Arabia. The agreement was executed by Mr. Harbert, Dogan and the consulting firm. Whereas this contract recites that it was signed in Saudi Arabia (Exhibit B, Complaint, at p. 3), the defendant contends that it was signed by the defendant at their offices in Alabama. (Harbert Affidavit P 17). Certain minor amendments to the agreement were later signed by Dr. Dogan in New York, as agent for Harbert. (Dogan Affidavit P 8; Harbert Affidavit P 12).

 Plaintiffs' original complaint contains seven claims all arising out of the alleged breach of these two contracts. Service of a summons and complaint were made upon the defendant at the NAC offices in New York. Plaintiffs have since moved this court for leave to amend their complaint to add claims arising from the alleged breach of a third agency agreement. This third agreement between Harbert and SADO extended SADO's consulting services for Harbert into Bahrain.

 II

 Before discussing the defendant's motion to dismiss, I will address plaintiffs' motion under Rule 15 to amend their complaint. Rule 15(a) states in part that "(a) party may amend his pleading once as a matter of course at any time before a responsive pleading is served ...." In this case, the defendant has not yet answered the complaint but has instead made a motion to dismiss for lack of personal jurisdiction. This motion does not constitute a responsive pleading for purposes of Rule 15(a). Kamerman v. Pakco Companies, Inc., 75 F.R.D. 673 (S.D.N.Y.1977). As a result, plaintiffs, absent any bad faith, may amend their complaint as of right even though it may be an attempt to cure a jurisdictional defect. See Drennon v. Philadelphia General Hospital, 428 F. Supp. 809 (E.D.Pa.1977); Holt v. Katy Industries, Inc., 71 F.R.D. 424 (S.D.N.Y.1976). For purposes of defendant's motion to dismiss, therefore, the complaint is deemed amended.

 III

 The amenability of a foreign corporation to suit in a federal diversity action must be determined in accordance with the law of the state where the court sits. Arrowsmith v. United Press International, 320 F.2d 219 (2d Cir. 1963). As a result, New York law will apply to determine whether the defendant is subject to in personam jurisdiction in this court. The plaintiffs argue that there are three avenues to obtaining personal jurisdiction over this defendant in New York. The first is that the defendant is present in New York because it is "doing business" here within the meaning of Section 301 of the New York Civil Practice Law and Rules ("C.P.L.R."). The second is that the defendant's actions provide a basis for long-arm jurisdiction under C.P.L.R. § 302. The third avenue is that the parties specifically consented to personal jurisdiction in New York when they entered into the agreements. Each of these arguments will be addressed in order.

 It is important to note first, however, that the plaintiffs have the burden of establishing by a preponderance of the evidence that the defendant is subject to personal jurisdiction under New York law. Pneuma-Flo Systems, Inc. v. Universal Machinery Corp., 454 F. Supp. 858 (S.D.N.Y.1978). Although the parties are in basic agreement as to the facts as already set forth, several conflicts exist in the record. These conflicts have been resolved, where possible, in favor of the plaintiff. Nevertheless, for the reasons set forth below, I do not find that the plaintiffs have borne their burden.

 IV

 1. "Doing Business" Under C.P.L.R. § 301

 Under § 301 of the C.P.L.R., a foreign corporation is subject to the jurisdiction of New York courts when the corporation is found to be present within the state. New York courts have established a "doing business" test which requires that the defendant systematically and regularly carry on business activities within the state in order to be subject to personal jurisdiction for acts unrelated to those business activities. Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 266, 115 N.E. 915, 917 (1917); Top Form Mills, Inc. v. Sociedad Nationale Industria Applicazioni Viscosa, 428 F. Supp. 1237, 1242 (S.D.N.Y.1977). In examining the record, I do not believe defendant's activities meet the standard of "doing business" under New York law.

 In their argument, plaintiffs rely heavily on the defendant's participation in NAC which maintains an office in New York City. Mr. Harbert admitted that certain of his company's employees worked for NAC offices in New York. (Harbert Affidavit P 8). In addition to NAC's presence, the plaintiffs seek to establish Harbert's contacts with New York by reciting Mr. Harbert's secretary's statement to plaintiffs' attorney that Mr. Harbert could be reached through NAC offices. (Pataki Affidavit P 10; Plunkett Affidavit PP 4, 5).

 In New York, a joint venture is treated as a partnership formed for a specific undertaking or purpose. Sadwith v. Lantry, 219 F. Supp. 171, 177 (S.D.N.Y.1963). It is clear under partnership law that NAC is an agent of Harbert Corporation for joint venture purposes. See Ingalls Iron Works Co. v. Fehlhaber Corp., 327 F. Supp. 272, 284 (S.D.N.Y.1971). Such a relationship has jurisdictional significance. A foreign corporation may be present in New York by virtue of the activities of its agent. Frummer v. Hilton Hotels International, Inc., 19 N.Y.2d 533, 538, 281 N.Y.S.2d 41, 45, 227 N.E.2d 851, 854, cert. denied sub. nom., U. K. Hilton Hotels, Ltd. v. Frummer, 389 U.S. 923, 88 S. Ct. 241, 19 L. Ed. 2d 266 (1967). It is important to note that if Harbert Corporation is found to be present in New York through the activities of NAC it may be sued on any cause of action, whether related to the NAC activities or not. See e.g., Gelfand v. Tanner Motor Tours Ltd., 385 F.2d 116 (2d Cir. 1967), cert. denied, 390 U.S. 996, 88 S. Ct. 1198, 20 L. Ed. 2d 95 (1968); Delagi v. Volkswagenwerk A. G. of Wolfsburg, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895 (1972).

 In view of the limited nature of Harbert Corporation's relationship with NAC and the nature of NAC's presence in New York, I do not believe that Harbert Corporation is doing business in New York within the meaning of § 301. An important New York case addressing this issue is Frummer, supra, which held that the Hilton Hotel in London, a British corporation, was "doing business" in New York because of services performed specifically publicity work and the making of final room reservations by the Hilton Reservation Service as agent for Hilton (U.K.). In another case, Gelfand, supra, decided by the Second Circuit Court of Appeals, a defendant bus owner, operating tours in the Grand Canyon, was found to be doing business in New York. The only contact the defendant corporation had with New York was membership in a non-profit association which publicized for several travel companies. This association hired a New York travel agent to confirm reservations. When the plaintiffs purchased their tour tickets through the New York agent and were later injured on the bus in Nevada, they could obtain personal jurisdiction over the defendant in New York.

 The situation at bar is significantly different from these cases which found a foreign corporation present in New York through their agent. In the above cases, the agent's services were "sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services." Gelfand, 385 F.2d at 121. NAC, according to both parties, however, operated with a finite purpose the construction of an Israeli airfield. I do not find that the NAC office in New York provides "important services" to the defendant Harbert. There is no allegation that NAC negotiated or entered into any contracts for the defendant. Instead, plaintiff alleges that Harbert employees use NAC offices to conduct Harbert business (Dogan Affidavit P 10). Harbert denies this and asserts that NAC offices were utilized for NAC purposes only (Harbert Affidavit PP 5, 6, 7, 8). Upon close examination of the record, the most important function alleged by plaintiff which NAC performs for Harbert is receiving telephone messages. (Pataki Affidavit P 10). I do not believe this rises to the level of "importance" contemplated by New York courts to constitute doing business. In sum, plaintiffs' allegations do not suffice to show that any NAC activities constitute "doing business" on behalf of Harbert.

 Plaintiffs point to a New York case, Balogh v. Rayner-Smith, 30 A.D.2d 788, 291 N.Y.S.2d 440 (1st Dep't 1968), to argue that participation in a partnership in New York is sufficient to confer personal jurisdiction over a non-resident defendant. Plaintiff overlooks the fact, however, that Balogh was decided under C.P.L.R. § 302, the New York long-arm statute. This distinction is not without significance. In Balogh, the cause of action arose out of partnership activities in New York. Here, plaintiffs' claims do not relate to any NAC activities. NAC was not a party to the contracts which form the basis of the complaint nor did it participate in any way to the formation of these contracts. As a result, NAC activities cannot form the basis of personal jurisdiction over defendant Harbert in New York either under § 301 or 302 of the C.P.L.R.

 In arguing defendant's presence in New York, plaintiffs also point to Harbert's joint venture relationship with Howard, a Swiss corporation, who was to participate in the Saudi Arabian projects arranged by SADO. Howard is allegedly a subsidiary of International Telephone and Telegraph, a corporation with offices and employees in New York City. This is further proof, according to plaintiff, that the defendant is doing business in New York. (Dogan Affidavit P 14). I disagree. Entering a joint venture with another foreign corporation does not constitute "doing business" in New York merely because that foreign corporation is a subsidiary of a New York corporation. The subsidiary itself is not subject to New York jurisdiction unless it can be found to be a "mere department" of the New York parent. Taca International Airlines v. Rolls Royce of England, 15 N.Y.2d 97, 256 N.Y.S.2d 129, 204 N.E.2d 329 (1965). Even if plaintiff could show that Howard was a "mere department" of ITT, I do not believe ...


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