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LEVISOHN v. MEDICAL TAPING SYS.

June 19, 1998

LEVISOHN, LERNER, BERGER & LANGSAM, Plaintiff, against MEDICAL TAPING SYSTEMS, INC., NELLCOR PURITAN BENNETT, INC., STEPHEN SOLENBERGER, G. BOOKER SCHMIDT, ROLAND B. DESILETS, JR., DIANE O. MANN, K.C. CRAICHY, MONICA F. CRAICHY, MAYNARD RAMSEY, M.D. and DAVID G. SHELL, Defendants.

William C. Conner, Senior United States District Judge.


The opinion of the court was delivered by: CONNER

OPINION AND ORDER

(REDACTED PER REQUEST OF COUNSEL)

 Conner, Senior D.J.:

 In this diversity action, plaintiff Levisohn, Lerner, Berger & Langsam ("LLBL"), a New York law firm, seeks to recover legal fees allegedly owed by defendant Medical Taping Systems, Inc. ("MTS"). *fn1" LLBL alleges that MTS breached a retainer agreement and fraudulently conveyed its assets to the eight individual defendants. These defendants -- Stephen Solenberger, G. Booker Schmidt, Roland Desilets, Jr., Diane Mann, K.C. Craichy, Monica Craichy, Maynard Ramsey, and David Shell *fn2" -- are the sole shareholders of MTS, and some appear to have served MTS in other capacities. *fn3" Also named as a defendant is Nellcor Puritan Bennett, Inc. ("Nellcor"), *fn4" a former competitor of MTS.

 Two motions are now before the Court. First, the individual defendants move to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. Second, LLBL moves, pursuant to Rule 12(b)(6), to dismiss MTS's breach-of-contract counterclaim for failure to state a claim upon which relief can be granted. For the reasons discussed below, the individual defendants' motion is denied and LLBL's motion is granted.

 BACKGROUND

 On September 13, 1994, LLBL and MTS entered a retainer agreement (the "Retainer Agreement"). The Retainer Agreement called for LLBL to provide MTS with intellectual property legal services with respect to a medical product (the "Product") manufactured and sold by MTS. At the time, MTS was a start-up company with a contemplated product and no sales. For this reason, the Retainer Agreement specified a fixed-fee arrangement based on MTS's anticipated revenues. Specifically, MTS was to pay LLBL a fixed fee constituting 10% of gross revenues received from sales of the Product and other related products. The Retainer Agreement stated that the fixed-fee arrangement would apply for five years, over which LLBL would be entitled to no more than $ 300,000 in fees annually.

 MTS entered into the Retainer Agreement largely because it anticipated intellectual property disputes with Nellcor, which sold a medical device similar to the Product developed by MTS. For the first one-and-a-half years of their relationship, LLBL provided MTS with advice on intellectual property and antitrust issues pertaining to Nellcor. LLBL also helped MTS commence a declaratory judgment action against Nellcor in the United States District Court for the Eastern District of Pennsylvania; that action was voluntarily dismissed.

 In February 1996, Nellcor sued MTS in the United States District Court for the Northern District of California, asserting causes of action relating to MTS's sales of the Product. LLBL represented MTS in that litigation and successfully opposed Nellcor's motion for a preliminary injunction. According to the individual defendants, MTS paid LLBL approximately $ 250,000 in legal fees for its services in connection with the Nellcor dispute.

 Soon thereafter, MTS and Nellcor participated in settlement discussions in California; LLBL did not participate in these discussions. On May 8, 1997, MTS and Nellcor entered into a settlement agreement (the "Settlement Agreement") providing [TEXT REDACTED BY THE COURT].

 After entering into the Settlement Agreement with Nellcor, MTS directed LLBL to execute a consent judgment and order (the "Consent Judgment") terminating the Nellcor litigation. However, citing the need for confidentiality, MTS refused to provide LLBL with a copy of the Settlement Agreement. *fn5" Concerned about receiving fees due under the Retainer Agreement, LLBL was reluctant to sign the proposed Consent Judgment without reviewing the Settlement Agreement. On May 21, 1997, after discussions between LLBL and defendants K.C. Craichy and Schmidt, MTS sent a letter (signed by defendant Solenberger as its president) to LLBL indicating that it was agreeing to LLBL's demand to be paid between 5% and 8% of the settlement amount (the "Letter Agreement"). The letter stated that MTS agreed to negotiate a fee in that range provided that LLBL cooperated in executing the Consent Judgment. (See Langsam Aff. Exh. F.) LLBL complied, and the Consent Judgment was entered on June 2, 1997.

 MTS and LLBL failed to reach a settlement, however. In order to collect the fees it claimed, LLBL sought leave from the court overseeing the Nellcor action to conduct a supplemental proceeding. According to the individual defendants, LLBL represented to that court that MTS owed it [TEXT REDACTED BY THE COURT] (which, although LLBL did not then know the precise amount of the settlement, turned out to be exactly 10% of that amount). In November 1997, the court declined to entertain LLBL's claim. As a condition of that ruling, however, MTS consented to jurisdiction in New York. This action followed.

 LLBL now claims that MTS breached the Retainer Agreement and the Letter Agreement. LLBL asserts that it is owed a percentage of the [TEXT REDACTED BY THE COURT] settlement between MTS and Nellcor because those proceeds constitute "gross revenues" under the Retainer Agreement. LLBL also asserts tort claims against the individual shareholder defendants, alleging that MTS fraudulently conveyed the proceeds of the Settlement Agreement to its shareholders, with their knowledge and consent, as part of a conspiracy to defeat LLBL's right to a portion of the proceeds. Additionally, LLBL asserts claims for enforcement of a charging lien, director and shareholder liability, and successor-in-interest liability. In total, LLBL now seeks over $ 1.25 million in damages.

 DISCUSSION

 I. Personal Jurisdiction Over the Individual Defendants

 On a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff ultimately bears the burden of establishing, either at an evidentiary hearing or at trial, that the court has personal jurisdiction over the defendants. See Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566-67 (2d Cir.), cert. denied, 136 L. Ed. 2d 398, 117 S. Ct. 508 (1996). Where, as here, the issue is addressed on affidavits without the benefit of an evidentiary hearing, the plaintiff need only make a prima facie showing of personal jurisdiction -- i.e., "an averment of facts that, if credited . . ., would suffice to establish jurisdiction over the defendant." Id. at 567. Under such circumstances, allegations in the pleadings and affidavits "are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor, notwithstanding a controverting presentation by the moving party." A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).

 In federal court, personal jurisdiction is determined according to the law of the state where the court sits. Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997); Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996). If the state's long-arm statute authorizes personal jurisdiction over the defendant, the court must then determine whether exercise of such jurisdiction would comport with the requirements of due process under the federal Constitution. Bensusan, 126 F.3d at 27; Metropolitan Life, 84 F.3d at 567.

 Section 302(a) of New York's long-arm statute provides:

 
. . . a court may exercise personal jurisdiction over any non-domiciliary . . . who in ...

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