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BENJAMIN SHERIDAN CORP. v. BENJAMIN AIR RIFLE CO.

July 20, 1993

BENJAMIN SHERIDAN CORPORATION, a Delaware corporation, Plaintiff,
v.
BENJAMIN AIR RIFLE COMPANY, a Missouri corporation, KATT AND KATT, a Wisconsin general partnership, and RAYMOND L. KATT, an individual, Defendants.



The opinion of the court was delivered by: DAVID G. LARIMER

 Plaintiff, Benjamin Sheridan Corporation ("BSC"), a Delaware corporation with its principal place of business in New York, commenced this action against Benjamin Air Rifle Company ("BARC"), a Missouri Corporation with its principal place of business in Wisconsin, Katt and Katt ("K & K"), a Wisconsin general partnership, and Raymond L. Katt ("Katt"), a resident of Wisconsin, claiming breach of contract and fraud. BSC's claims arise from its purchase of BARC and K & K assets used in the manufacture and sale of airguns and related products. BSC claims that defendants failed to disclose that (1) certain models of airguns manufactured by BARC contained a defective trigger mechanism; (2) earlier models also contained defects; and (3) 255 defective airguns were manufactured and sold from obsolete inventory in the two months before the purchase.

 Defendants now move to dismiss the complaint for lack of personal jurisdiction and lack of venue pursuant to Fed.R.Civ.P. 12(b)(2) and 12(b)(3), or, in the alternative, to dismiss the complaint for a failure to join an indispensable party pursuant to Fed.R.Civ.P. 12(b)(7) or to transfer this action to the United States District Court for the Eastern District of Missouri. *fn1" For the following reasons defendants' motion to dismiss for lack of personal jurisdiction is granted.

 BACKGROUND

 In the summer of 1991, Leonard Pickett ("Pickett"), a representative of PEXCO Holdings, Inc., located in Oklahoma, the parent company of Crosman Corporation ("Crosman"), *fn2" contacted Raymond Katt, the president of BARC, to inquire if BARC was for sale. (Affidavit of Raymond Katt ("Katt Aff.") at P 5). Katt, who was in Wisconsin when he received the call, expressed some interest and instructed Pickett, who Katt believed was in Tulsa, Oklahoma, to contact BARC's accountant, Wayne Grace ("Grace"), who was in St. Louis, Missouri. Pickett contacted Grace and sometime later Grace sent BARC's financial information to Pickett. Pickett later made a "ball park" offer, and Katt notified Pickett that he wanted to pursue further negotiations. A meeting was held in St. Louis in either October or November, 1991. Katt; his wife, Louise; his lawyer, Llewllyn Sale; Pickett; Grace; Crosman's President, Kenneth Scheele; and an attorney from Tulsa, Oklahoma representing Crosman, Larry Sandell, attended the meeting. At the meeting the parties reached an agreement on the basic terms and conditions of the sale. At this point, there had been no contact with or reference to New York whatsoever.

 At Crosman's request, BARC sent prints and drawings of its products to Crosman's New York office. Representatives of Crosman also travelled to Racine, Wisconsin to tour the BARC facilities there. Katt's son, David, an officer and employee of BARC, travelled to New York to tour the Crosman facility, but the purpose of the visit, according to Katt, was for David to discuss the possibility of working for Crosman after the sale was completed. (Id. at P 8). Crosman eventually sent Katt a letter of intent setting forth an offer to purchase various assets of BARC and K & K. However, Katt felt the letter did not accurately reflect all the matters agreed to at the meeting. Consequently, the parties engaged in further negotiations over the phone. Katt did not travel to New York during this round of negotiations.

 The parties agreed to the terms of a new, revised letter of intent. In a letter dated December 9, 1991, Crosman set out its offer. (Plaintiff's Brief in Opposition ("Pl.'s Brief"), Ex. A). At about the same time, Crosman was in the process of incorporating a subsidiary corporation. The new subsidiary, BSC, rather than Crosman, was going to acquire BARC's and K & K's assets. On January 9, 1992, the parties, BSC, BARC, and K & K, entered into a Purchase Agreement ("Agreement") in New Orleans, Louisiana.

 In addition to setting out the terms of the sale, the Agreement provided that at the time of the closing, Katt would enter into a Non-Competition Agreement ("NC Agreement") with BSC, and that payment under the NC Agreement would be guaranteed by Crosman according to two written guaranties ("Guaranties"). The Agreement also contained a choice-of-law provision which stated that the Agreement and the legal relations of the parties would be "governed by and construed in accordance with the laws of the State of New York applicable to agreements made in such state between residents thereof and to be wholly performed therein." (Pl.'s Brief, Ex. C at P 13.06).

 On February 28, 1992, the parties closed the deal in St. Louis, Missouri. During the closing the parties signed the NC Agreement, the Guaranties, and other related documents, including an Indemnification Agreement between Katt and BSC in which Katt agreed to indemnify BSC under certain circumstances. The NC Agreement, Guaranties, and Indemnification Agreement all contained choice-of-law provisions which stated that the agreements would be governed by, and construed and enforced in accordance with the laws of the State of New York. (Pl.'s Brief, Exs. D-G).

 Approximately five months after the closing, in July, 1992, BSC received a letter from one of its customers at its facility in Racine, Wisconsin. The letter described an unexpected discharge from a Sheridan Model C9 airgun as the safety was being disengaged. (Compl. at P 25). BSC contacted the customer who then returned the airgun to BSC's Racine facility in August, 1992. BSC employees at the Racine facility examined the airgun and verified the customer's complaint. BSC's Racine facility notified BSC's corporate headquarters in Fast Bloomfield, New York of the potential trigger defect.

 BSC immediately stopped manufacturing and distributing airguns that contained the possibly defective trigger mechanism, and began a design study of the trigger and safety mechanism used in Benjamin model and Sheridan model airguns. BSC determined that the design specification created the potential for those airguns to discharge as the safety was being disengaged, that BARC began manufacturing airguns that contained the defective trigger on or about February 7, 1991, and that a total of 65,189 airguns with the defective trigger had been manufactured since that date -- 44,321 by BARC and 20,868 by BSC.

 BSC also discovered that prior to February 7, 1991, BARC had been using a trigger mechanism in some of its airguns that was also defective, the airgun had the potential to fire when dropped from a short distance. Because of this defect, BARC switched to the new trigger design on February 7, 1991. BSC claims, though, that BARC sold 255 airguns that utilized the pre-February 7, 1991 firing mechanism before the deal closed on February 28, 1992.

 DISCUSSION

 I. Personal Jurisdiction: The Legal and Evidentiary Standard

 "Personal jurisdiction over a defendant in a diversity action is determined by the law of the forum in which the court sits." Cutco Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986) (citations omitted). Although "the plaintiff has the ultimate burden of establishing jurisdiction over defendant by a preponderance of the evidence, until an evidentiary hearing is held, it need make only a prima facie showing by its pleadings and affidavits that jurisdiction exists." Id. (citation omitted). "This remains true notwithstanding a controverting presentation by the moving party." Hoffritz For Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).

 "In the absence of an evidentiary hearing on the jurisdictional allegations, or a trial on the merits, all pleadings and affidavits are construed in the light most favorable to plaintiff, and where doubts exist, they are resolved in the plaintiff's favor." Id. "But if the court holds an evidentiary hearing in a manner similar to determining the issue at trial - the plaintiff must ...


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