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May 18, 1992

GLORIA ESTEFAN, et al. Defendants.


The opinion of the court was delivered by: LEONARD B. SAND


 In this action for copyright infringement, the plaintiff, Eddie Palmieri, alleges that in 1981 he wrote and recorded a song "Paginas De Mujer," to which he holds the copyright, and which was released in the United States by Barbaro Records the same year. Defendants Estefan, Casa and Ostawald claim that they composed the song "Oye Mi Canto," in 1989. Plaintiff alleges that "Oye Mi Canto" infringes on his copyright to "Paginas De Mujer," and that "Oye Mi Canto" was commercially exploited by Sony Music Entertainment Inc. (hereinafter "Sony Music") in the United States and by its affiliates abroad. On May 7, 1991, plaintiff filed this action, and in August of 1991, this Court granted the parties the opportunity to conduct jurisdictional discovery. Thirty-three foreign affiliates of Sony Corporation of Japan (hereinafter "Sony Corp.") that have been named as defendants in this action (hereinafter "the moving defendants") have now moved to dismiss the amended complaint for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2). *fn1"


 Sony Music, the successor in interest to CBS Records Inc. (hereinafter "CBS Records"), *fn2" is a record company which produces, manufactures and distributes recordings. See Transcript of Deposition of Stuart Bondell, Vice President of Business Affairs of Sony Music at 23, attached as Exhibit B to Affidavit of Brian Caplan, attorney for plaintiff (hereinafter "Bondell Dep."). Sony Corp. owns Sony Music and other entities, which in turn own the moving defendants. *fn3"

 The moving defendants argue that they are not subject to jurisdiction in the Southern District of New York. Each moving defendant alleges that it is incorporated under the laws of a country other than the United States and operates under the laws of the country in which it is located. See Affiliate Affs. at P2. *fn4" Each moving defendant alleges that it maintains an office only within its own territory and that it produces, manufactures and distributes musical recordings only within this territory. See Affidavit of Stuart Bondell, Vice President of Business Affairs of Sony Music, P3 (hereinafter "Bondell Aff."); Affiliate Affs. P3. *fn5" No moving defendant maintains an office or telephone number in New York, and only one affiliate has a bank account here. *fn6" See Affiliate Affs. PP4-5.

 The moving defendants state that they sign contracts with local recording artists and release their recordings only in their respective countries. See Bondell Aff. P4; Affiliate Affs. P6. *fn7" They state that they are financially independent. See Bondell Aff. P3; Affiliate Affs. PP7-8. Bondell concedes that as "the designee of the owner," he gives advice and assistance to the moving defendants in a small percentage of their contracts with recording artists. See Bondell Aff. P4. Bondell has assisted the affiliates in their negotiations with artists, as well as in the formulation of various business policies. See Bondell Dep. at 13-14. Some of the moving defendants' artists record in New York, and employees of the moving defendants occasionally accompany them on these trips. Sony Music's administration department has assisted the foreign affiliates with booking studio time in New York on some of these occasions. See Bondell Dep. at 60-61.

 Each moving defendant made a "matrix" agreement with CBS Records, the predecessor of Sony Music. A matrix agreement grants each moving defendant the exclusive right to manufacture and distribute within its territory any recording in the repertoire of Sony Music and any other party to a matrix agreement with Sony Music. See Bondell Aff. P5; Affiliate Affs. P6. Each moving defendant in turn grants to Sony Music and any other party to a matrix agreement the exclusive right to manufacture and distribute within their respective territories any selection from that moving defendant's repertoire.

 Each moving defendant has the power to decide whether to release a selection from Sony Music or another moving defendant's repertoire, and the matrix agreement does not obligate a moving defendant to do so. If the moving defendant does decide to release a selection, it pays a fee to the moving defendant from whose repertoire the selection comes. See Bondell Aff. P6. According to defendants, any sales made by a moving defendant which derive from the rights acquired under a matrix agreement are made for that affiliate's own account and not on behalf of Sony Music or the affiliate from whose repertoire the selection originated. See Bondell Aff. P7. When both requesting and originating moving defendants are located in Europe, the fee is paid directly to the originating affiliate from the requesting affiliate. Otherwise, the requesting moving defendant pays the fee to Sony Music, which then pays the originating affiliate. In these cases, Sony Music provides the moving defendants with an accounting of the money owed to the affiliates. See Bondell Aff. P6.

 The parties agree that the moving defendants earn profits from the sale of musical recordings obtained through the matrix agreements. Plaintiff claims that in the fiscal year ending January 31, 1991, a substantial percent of the moving defendants' profits were derived from rights granted in matrix agreements. *fn8" See Plaintiff's Mem. of Law at 5-6; Caplan Aff. P11. A significant percent of their profits were derived from recordings of artists signed directly to Sony Music in New York. According to plaintiff, this represents many millions of dollars of sales. Plaintiff also claims that the fees paid to moving defendants for sales by Sony Music in New York of recordings from their own territories "substantially contributed" to the moving defendants' royalty income of several million dollars in the fiscal year ending January 31, 1991. See Plaintiff's Mem. of Law at 6. However, the moving defendants dispute these figures. See Affidavit of Roger Romano, Controller of the International Division of Sony Music PP2-8 (hereinafter "Romano Aff.").

 Each affiliate maintains its own offices, bank accounts, and financial records. See Affiliate Affs. P7. Defendants state that each affiliate makes independent business decisions about the recordings it will produce and the manufacture of those recordings, as well as most personnel decisions. Id. However, each affiliate must seek approval from Sony Music for major financial decisions, including artist advances, and for the "hiring and personnel decisions regarding locally well-compensated employees." See id. at P9. Sony Music has guaranteed the obligations of at least one foreign affiliate. See Bondell Dep. at 55-56. Sony Music monitors the performance and reviews the budget of each affiliate, and the affiliates provide financial and management reports regularly. See Affiliate Affs. P9; Bondell Dep. at 47-48. Sony Music management and the management of the affiliates meet "quasi-regularly." See Bondell Dep. at 47, 50.


 Standard of Review

 The burden of establishing personal jurisdiction over a defendant ultimately is upon the plaintiff. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981): Hvide Marine Int'l Inc. v. Employers Ins. of Wausau, 724 F. Supp. 180, 182 (S.D.N.Y. 1989). If jurisdiction is challenged prior to discovery, the plaintiff may defeat the motion by a good faith pleading of legally sufficient allegations of jurisdiction. Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, 112 L. Ed. 2d 116, 111 S. Ct. 150 (1990). At this stage, the plaintiff may make a prima facie showing solely by allegations. Id. Where a motion testing jurisdiction is made after discovery, the plaintiff may still defeat the motion by making a prima facie showing, but this must include "an averment of facts that, if credited by the trier, would suffice to establish jurisdiction over the defendant." Id.; United Bank of Kuwait, PLC v. James M. Bridges, Ltd., 766 F. Supp. 113, 115 (S.D.N.Y. 1991). If the defendant challenges plaintiff's factual allegations essential to establish jurisdiction, a hearing is required at which the plaintiff must establish personal jurisdiction by a preponderance of the evidence. Ball, 902 F.2d at 197; Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir. 1984).

 Here the parties have had the opportunity to conduct jurisdictional discovery. While the moving defendants have contested some of plaintiff's factual allegations, their motion is directed to a challenge of the sufficiency, not the credibility of those allegations. Upon examining the record, we determine that the jurisdictional issue can be resolved on the basis of undisputed facts.

 New York CPLR § 301 and "Doing Business"

 In a diversity action, a federal court must look to the law of the forum state to determine whether personal jurisdiction exists over a nonresident defendant. Savin v. Ranier, 898 F.2d 304, 306 (2d Cir. 1990) (citing Arrowsmith v. United Press Int'l, 320 F.2d 219, 222-25 (2d Cir. 1963)). If the applicable statute of the forum state allows the court to exercise jurisdiction, the court must then consider whether the exercise of jurisdiction meets constitutional standards of due process. See Savin, 898 F.2d at 306; Darby v. Compagnie National Air France, 735 F. Supp. 555, 559 (S.D.N.Y. 1990).

 Plaintiff asserts jurisdiction over the moving defendants on the basis of New York Civil Practice Law & Rules § 301. See Plaintiff's Mem. of Law at 11. Section 301 provides that "[a] court may exercise jurisdiction over person, property, or status as might have been exercised heretofore." N.Y.C.P.L.R. § 301. Section 301 incorporates the caselaw prior to its enactment which provided that a corporation may be subject to jurisdiction in New York for any cause of action even if unrelated to contacts in New York if it is "doing business" and therefore "present" in New York. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57-58 (2d Cir. 1985). The New York courts have construed this standard so that a foreign corporation must do business in New York "not occasionally or casually, but with a fair measure of permanence and continuity." Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915, 917, (1917); accord Laufer v. Ostrow, 55 N.Y.2d 305, 310, 434 N.E.2d 692, 694, 449 N.Y.S.2d 456, 458 (1982). The New York courts have termed this test for doing business a "simple and pragmatic one," Bryant v. Finnish National Airline, 15 N.Y.2d 426, 432, 208 N.E.2d 439, 441, 260 N.Y.S.2d 625, 628-29 (1965), in which the court determines if the foreign corporation's activities in New York are "continuous and systematic." Frummer v. Hilton Hotels Int'l, Inc., 19 N.Y.2d 533, 536, 227 N.E.2d 851, 853, 281 N.Y.S.2d 41, 43, cert. denied, 389 U.S. 923, 19 L. Ed. 2d 266, 88 S. Ct. 241 (1967). However, the caselaw demonstrates that evaluation of jurisdiction under this "doing business" standard requires close consideration of the facts and circumstances in each case, because no single factor is dispositive. See H. Heller & Co., Inc. v. Novacor Chemicals Ltd., 726 F. Supp. 49, 52 (S.D.N.Y. 1988); Top Form Mills v. Sociedad Nationale Ind., Etc., 428 F. Supp. 1237, 1242 (S.D.N.Y. 1977); Sunrise Toyota, Ltd. v. Toyota Motor Co., 55 F.R.D. 519, 523 (S.D.N.Y. 1972).

 Plaintiff does not contend that the moving defendants have sufficient direct contacts with New York to meet the "doing business" standard. Rather, plaintiff argues that the moving defendants satisfy two tests under which a foreign corporation may be found to be "doing business" in New York based solely on a relationship with another entity that is "present" in New York. The presence of a local corporation does not necessarily create jurisdiction over a related foreign company. See Delagi v. Volkswagenwerk AG of Wolfsburg, 29 N.Y.2d 426, 432, 278 N.E.2d 895, 897, 328 N.Y.S.2d 653, 657 (1972). However, under New York law, jurisdiction may be obtained over a foreign company if it is a "mere department" of an entity that is present in New York, or if the relationship between the foreign corporation and the local one gives rise to the valid inference of an agency relationship. See Saraceno v. S.C. Johnson & Son, Inc., 83 F.R.D. 65, 67 (S.D.N.Y. 1979); Sunrise Toyota, Inc., 55 F.R.D. at 528. ...

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