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GATES v. PINNACLE COMMUNS. CORP.

October 15, 1985

ALBERT GATES, Plaintiff,
v.
PINNACLE COMMUNICATIONS CORPORATION and LARRY G. SHIPP, individually, Defendants



The opinion of the court was delivered by: CARTER

CARTER, District Judge.

Plaintiff Albert Gates has filed a complaint alleging breach of contract and fraud arising from the negotiations involved in financing the purchase of radio station KMZQ-FM in Las Vegas, Nevada. The defendants, Pinnacle Communications Corporation ("Pinnacle"), a Nevada corporation, and Larry Shipp, Pinnacle's president and a Nevada citizen and resident, have moved to dismiss the complaint pursuant to Rule 12(b)(1), (2) and (3), F.R.Civ.P. Defendants claim lack of personal and subject matter jurisdiction as well as improper venue. In the alternative, defendants seek a transfer to the United States District Court for the District of Nevada pursuant to 28 U.S.C. § 1404.

 On August 4, 1984, Gates, a citizen of Connecticut, discussed purchasing radio station KMZQ-FM during a telephone conversation with Shipp's agent, Richard Mack. Neither claims to have been in New York at the time. After this conversation, Gates sent $25,000 to the Karis Radio Corporation/Pargo Broadcasting ("Karis"), KMZQ-FM's seller. On August 8, Gates spoke by phone with Shipp. Again, neither party is asserted to have been in New York. That day, Gates sent $5,000 to Karis and arranged for an additional $20,000 to be sent.

 Later that August Shipp traveled to New York on business unrelated to the purchase of KMZQ-FM. On August 30, Shipp met with Mack and Gates at the Grand Hyatt Hotel in New York City. For about an hour, they discussed financing the purchas of the radio station. Shipp asserts that this meeting was to explore possibilities of a loan or joint venture between him and Gates. Shipp Affidavit, [P] 4. Gates's view of events is less clear: the complaint asserts that this meeting confirmed the terms of a joint venture between Shipp and Gates negotiated in the previous discussions (Complaint [P] 8); however, his affidavit in opposition to this motion asserts that the terms of the joint venture were "negotiated and agreed to" at the meeting. Gates Affidavit, [P] 7. In any event, no written agreement emerged from the meeting. Plaintiff and defendant Shipp met socially in Washington, D.C. one month later, and again discussed arrangements to purchase KMZQ-FM.

 Pinnacle was incorporated in Nevada on September 26, 1984, in order to purchase KMZQ-FM, which it now owns. Pinnacle employs Major Market Radio, Inc. ("Major Market") to procure national advertisers for KMZQ-FM's Nevada broadcasts. Major Market's offices are in New York City; during the period from November, 1984 to March, 1985, it provided less than $2,000 in gross billings to Pinnacle, or less than one per cent of KMZQ-FM's total billings.

 DISCUSSION

 Under New York law, which is controlling on the issues dispositive of this motion, Arrowsmith v. United Press Int'l, 320 F.2d 219 (2d Cir. 1963) (en banc), there are two potential sources of jurisdiction over foreign corporations and individual non-domiciliaries such as these defendants: NYCPLR § 302 (McKinney 1972), which confers jurisdiction over specific causes of action arising from the defendant's behavior, *fn1" and the "doing business" test of Tauza v. Susquehanna Coal Corp., 220 N.Y. 259, 115 N.E.2d 917 (1917), which confers general jurisdiction over foreign corporations that can be said to be "present" in New York. Simonson v. Int'l Bank, 14 N.Y.2d 281, 251 N.Y.S.2d 433, 436, 200 N.E.2d 427 (1964). neither sustains the jurisdictional claims here. Plaintiff alleges only two contracts between the parties to this litigation and the State of New York: a single hour-long meeting in a Manhattan hotel room and a minor business relationship between Pinnacle and Major Market. Whether these contacts satisfy the "minimum contracts" requirements of International Shoe Co. v. Washington, 326 U.S. 310, 90 L. Ed. 95, 66 S. Ct. 154 (1945) and its progeny is not at issue; they simply do not meet the requirements of New York law. See Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc., 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68, cert. denied sub nom. Estwing Mfg. Co. v. Singer, 382 U.S. 905, 15 L. Ed. 2d 158, 86 S. Ct. 241 (1965).

 A. Defendant Pinnacle

 A foreign corporation that does not itself do business in New York may nonetheless be subjected to New York's jurisdiction if its agent does business in New York. Frummer v. Hilton Hotels Int'l Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851, cert. denied 389 U.S. 923, 19 L. Ed. 2d 266, 88 S. Ct. 241 (1967); Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116 (2d Cir. 1967), cert. denied 390 U.S. 986 (1968). The entity or person present in New York must be an agent of the foreign corporation, and not merely an independent contractor. Fordyce v. Round Hill Developments, Ltd., 585 F.2d 30 (2d Cir. 1978). In Frummer v. Hilton Hotels Int'l Inc., supra, the New York Court of Appeals defined the functional standard for demonstrating agency for purposes of the doing business test: whether "the [local agent] does all the business which [the foreign corporation] could do were it here by its own officials." Id., 19 N.Y.2d at 537. As articulated by the Second Circuit in Gelfand v. Tanner Motor Tours, Ltd., supra, there are two aspects to this test. The services of the local business must go "beyond 'mere solicitation'" and must be "sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation would undertake to perform substantially similar services." Id. at 121. The Gelfand court defines agency in part by looking at the breadth of powers conferred on the local business; the case held that a foreign corporation did business in New York where the local agent did not simply confirm bookings for the foreign corporation, but maintained a "broad range of services" for it. Id.

 Aptly enough, the leading cases discussing the powers that a foreign corporation must confer to a local business before that business will be deemed its agent concern the travel industry. In Frummer, the defendant Hilton (U.K.) and the local contract, Hilton Reservation Service, shared a common owner. The reservation service did more than solicit clients for Hilton (U.K.)'s hotels; it accepted reservations and confirmed them. It also actively promoted Hilton (U.K.), leading the court to conclude that it did all that Hilton (U.K.) could do were it in New York. Frummer distinguished an earlier New York case, Miller v. Surf Properties, 4 N.Y.2d 475, 176 N.Y.S.2d 318, 151 N.E.2d 874 (1958), which had held the activities of a local travel agency insufficient as a basis for jurisdiction over the foreign defendant because the travel agency could make, but not confirm, reservations. Two factors in Frummer led to the inference of agency there that the Court of Appeals had refused to make in Miller : power of the local travel agency to confirm reservations and common ownership of the hotel and travel agency.

 Plaintiffs bear the burden of demonstrating that the court has personal jurisdiction over the defendants. Lehigh Valley Industries, Inc. v. Birenbaum, 527 F.2d 87, 92 (2d Cir. 1975). On the bare facts submitted, plaintiff has not demonstrated that Major Market possesses the powers requisite to the creation of an agency relationship for the purposes of conferring personal jurisdiction over Pinnacle upon this court. Plaintiff's complaint fails to mention major market at all; it baldly asserts that Pinnacle does business in New York through its agent, Krystal Radio. Gates later states that "more recent inquiry" reveals that it is Major Market that acts as Pinnacle's agent and that major Market "solicits, books and confirms radio spots" for Pinnacle. Gates Affidavit, [P] 11. Shipp, Pinnacle's president, asserts that Major Market merely solicits national advertisers and cannot bind Pinnacle. Shipp Affidavit, [P] 5. Without more convincing proof of Major Market's power to bind Pinnacle, or that the company provides Pinnacle the broad range of services that Gelfand demands, the court cannot find that Major Market is Pinnacle's agent. Plaintiff does not meet the first requirement of Gelfand.

 Plaintiff also fails in re the second requirement of Gelfand. He fails to show that Major Market's services are so important to Pinnacle that, if Major Market did not provide them, Pinnacle would be forced to establish its own presence in New York to replace them. Gelfand, 385 F.2d at 121. Major Market provides only one per cent of KMZQ's advertising revenue. In Gelfand, the local travel agent provided the foreign tour operators with three-sevenths of their business on a particular tour, *fn2" totaling $120,000 per year. It is unlikely that Pinnacle would maintain a corporate presence in New York in order to replace services that generate less than $6,000 per year in revenue. Major Market's services for Pinnacle do not render the company subject to the court's jurisdiction.

 Alternatively, plaintiff suggests that Shipp's August meeting in New York renders Pinnacle subject to New York jurisdiction under NYCPLR § 302(a)(1) or (a)(2). Pinnacle did not exist until nearly a month after that meeting. Plaintiff's argument that Pinnacle later ratified Shipp's actions at that meeting is not ...


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