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October 9, 1999


The opinion of the court was delivered by: Spatt, District Judge.


This diversity matter concerns allegations by Plaintiff New York Islanders Hockey Club, LLP ("Islanders") of fraud, negligent misrepresentation, and negligent supervision against Defendant Comerica Bank — Texas ("Comerica") and its Senior Vice President, Joseph D. Lynch ("Lynch"), both residents of Texas. Presently before the Court are Defendants' motions to dismiss pursuant to Fed. R.Civ.P. 12(b)(2) and (6), to strike allegations pursuant to Fed.R.Civ.P. 12(f), and the Defendants' objections to the report and recommendation of the Magistrate Judge refusing to stay discovery.


In approximately July of 1996, an individual named John A. Spano, a Texas resident, began negotiations with the owners of the Islanders, a National Hockey League franchise, to acquire the team. In November 1996, the Islanders' controlling owner, John O. Pickett, Jr. requested proof from the heretofore unknown Spano that he had sufficient assets to acquire the team. Spano apparently contacted Comerica through Lynch, and by letter dated November 14, 1996, Lynch sent this message to John Pickett at his address in Palm Beach, Florida:

  This letter is to inform you of John A. Spano's
  relationship with Comerica Bank — Texas.
  Mr. Spano maintains a net worth in excess of more
  than $100,000,000.00. We consider Mr. Spano to be a
  valued customer of our Bank, and he conducts his
  business in a satisfactory manner.

In actuality, Spano had no significant assets, and had fraudulently misrepresented his net worth to Comerica.

Based on the representations in the November 14 letter, John Pickett continued negotiations with Spano and ceded operational control of the team to Spano in early April 1997. On April 7, 1997, the Islanders, Spano, and a consortium of banks, including Comerica, held a closing on the transaction, although the amended complaint does not indicate where such closing took place. Plaintiff's brief — but not affidavits — in opposition to the motion states that the closing took place in New York, but seems to suggest that Comerica was not present there and was represented by another bank. The banks, several of which were acting through their offices in New York State, delivered a financing package of $80 million, and Spano was to have contributed $16.8 million of his own personal funds. Not surprisingly, Spano's contribution did not materialize.

Nevertheless, the Islanders proceeded to consummate the sale, allowing Spano additional time to make his payment. On April 9, 1997, Lynch and his deputy William Rolley were guests of Spano at an Islanders game in the Nassau Coliseum, at which time Lynch explained to John Pickett's son, Barrett Pickett, that Comerica's participation in the financing of the deal was a courtesy to a valued customer like Spano.

On April 22, 1997, Spano flew to New York to deliver a personal check for $16.8 million, drawn on his Comerica account, to Barrett Pickett. On April 24, 1997, Barrett Pickett deposited the check, and Rolley repeatedly assured him that the check would clear as soon as it was presented to Comerica. However, Spano had stopped payment on the check on April 23, 1997. The Islanders allege that Spano's cancellation of the check was known to or should have been known to Rolley at the time he was making the assurances. Spano then explained to the Islanders that he would prefer to finance his portion of the payment by means of a personal loan he had applied for from Comerica. Expecting that the loan would clear faster than Spano's personal check, the Islanders' agreed. On April 25, 1997, Rolley assured Barrett Pickett that Spano's loan was nearly complete, and that all that was needed was Spano's signature. On April 28, 1997, Rolley telephoned Barrett Pickett and told him that the loan had been completed, and that the money would be wired into the Islanders' account in New York the next day. On April 29, Rolley again phoned Barrett Pickett, telling him that Comerica had "everything we need" and that the wire transfer would be completed later that day.

The wire transfer never took place. Instead, Spano explained that the assets necessary to make the payment were shielded from taxes in the Cayman Islands, and his tax attorney had advised him that it would take 30 days to resolve the tax issues before the money could be released to the Islanders. The Islanders agreed to wait and allow the payment to be made to an escrow account in the Caymans, from which the funds would eventually be released to the Islanders. On June 5, 1997, Spano deposited a $17 million check, drawn on a Comerica account in the name of Agusta Leasing, Inc., a corporation owned by Spano, in an account in the Cayman Islands. Although the Islanders allege that the Agusta Leasing account at Comerica did not contain any significant funds, Lynch phoned Barrett Pickett on July 9, 1997, explaining that there was no reason why the Augusta Leasing check would not clear when expected.

Approximately a week later, a Comerica employee apparently contacted the Islanders, asking to hold the Augusta Leasing check an extra day, purportedly to allow a check deposited in the Augusta Leasing account to clear. However, by this time, the Augusta Leasing check had already been dishonored for lack of funds, and there were no checks awaiting clearing for deposit in Augusta Leasing's account. Alas, the scheme at an end, Spano returned operational control of the team to John Pickett on July 11, 1997. The Islanders allege that, under Spano's control, they suffered damages in excess of $10 million.

The Islanders filed a complaint in the Eastern District of New York on September 15, 1998, and an amended complaint on January 19, 1999, alleging jurisdiction based on diversity under 28 U.S.C. § 1332 and venue on the basis that a substantial part of the events giving rise to the claim occurred in the district. The amended complaint contained four causes of action: fraud against both Defendants, negligent misrepresentation against both Defendants; a cause of action in respondeat superior against Defendant Comerica, and negligent supervision against Defendant Comerica.

The Defendants now move to dismiss the complaint, pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction over them, or in the alternative, to transfer the case to the Northern District of Texas. Comerica contends that, as a Texas bank, it does not "do business" in New York State, and that the few phone calls made by Rolley to Barrett Pickett did not constitute "transacting business" under N YCPLR § 302(a)(1). It further contends that, even if it is "transacting business" in New York by virtue of its participation in the $80 million package financing Spano's purchase, the transactions in New York are unrelated to the Islanders' claims, since the Islanders do not allege any wrongdoing related to the issuance of the loan itself.

In the alternative, the Defendants move to dismiss each of the four causes of action under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. The Defendants contend that the fraud cause of action, which encompasses the November 14, 1996 letter and the various post-closing representations made by Lynch and Rolley to the Islanders, fails to plead scienter and causation, and that some of the representations are non-fraudulent expressions of opinion or predictions of future events. The Defendants move to dismiss the negligent misrepresentation claim on the grounds that Comerica owed no special duty of care to the Islanders, given their arm's-length relationship, and that the negligent misrepresentation claim suffers from the same pleading defects as the fraud claim. Comerica also argues that the negligent hiring claim should be dismissed since the amended complaint fails to allege Comerica's knowledge of prior misrepresentations by its employees, and seeks dismissal of the respondeat superior cause of action on the grounds that no actionable fraud by any employee can be shown and that the Islanders do not allege that Comerica knew of the fraudulent acts so as to ratify them. In addition, Comerica moves to strike the claim for punitive damages, and to strike from the complaint allegations of previous fraudulent schemes by Spano that Comerica and Lynch allegedly participated in.

On the other hand, the Islanders contend that there is long-arm jurisdiction over Comerica based on its transaction of business within New York State, specifically a loan of $3 million to the Islanders, and a loan of $5 million to Spano, which was wired into the Islander's bank account as part of the financing of the sale. The Islanders further contend that, due to his role as a primary actor in Comerica's transactions, Lynch is also subject to personal jurisdiction in New York. The Islanders contend that the loans are sufficiently connected to the allegations of wrongdoing in the complaint to justify the exercise of personal jurisdiction. Moreover, the Islanders claim that jurisdiction is available under CPLR § 302(a)(3) on the ground that Lynch committed a tortious act in Texas that he should have expected to cause injury in New York. In addition, the Plaintiff defends the various causes of action as properly pleaded. Also, the Islanders oppose a transfer of the case to the Northern District of Texas.


In ruling on a motion under Fed. R.Civ.P. 12(b), the court is to look only to the allegations of the complaint and any documents attached to or incorporated by reference in the complaint, Newman & Schwartz v. Asplundh Tree Expert Co., 102 F.3d 660, 662 (2d Cir. 1996); to assume all well-pleaded factual allegations to be true; and to view all reasonable inferences that can be drawn from such allegations and documents in the light most favorable to the plaintiff. Dangler v. New York City Off Track Betting Corp., 193 F.3d 130 (2d Cir. 1999).

A. As to personal jurisdiction over Comerica

If the Court relies on the pleadings and affidavits alone, the plaintiff need only make a prima facie showing of jurisdiction in order to defeat the motion to dismiss. PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997); Welinsky v. Resort of World D.N.V., 839 F.2d 928, 930 (2d Cir. 1988). Moreover, the pleadings and affidavits should be construed in the light most favorable to the plaintiff, and all doubts resolved in its favor. The Court should also keep in mind that "personal jurisdiction inquiries are `necessarily fact sensitive because each case is dependant upon its own particular circumstances.'" PDK Labs. Inc., supra, 103 F.3d at 1108 (quoting Landoil Resources Corp. v. Alexander & Alexander Services, Inc., 918 F.2d 1039, 1043 [2d Cir. 1991]).

Personal jurisdiction over a defendant in a diversity action is determined by the law of the forum state. CutCo Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986); Arrowsmith v. United Press International, 320 F.2d 219, 223 (2d Cir. 1963) (en banc). Consequently, the Court looks to New York's personal jurisdiction statutes, CPLR §§ 301 and 302, to determine whether the plaintiff has set forth a prima facie showing of in personam jurisdiction over the defendant. See Slapshot Beverage Company, Inc. v. Southern Packaging Machinery, Inc., 980 F. Supp. 684, 686 (E.D.N.Y. 1997).

CPLR § 302(a)(1) authorizes the exercise of personal jurisdiction over a nondomiciliary "who in person or through an agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state." "A nondomiciliary `transacts business' under CPLR 302(a)(1) when he `purposefully avails [himself] of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its laws.'" CutCo Industries, Inc. v. Naughton, supra, 806 F.2d at 365 (internal citations and quotations omitted). In addition, a plaintiff establishing jurisdiction under a "transacting business" theory must also show that the causes of action "arise out of" defendant's transactions within the state. Kronisch v. U.S., 150 F.3d 112, 130 (2d Cir. 1998). "No single event or contact connecting the defendant to the forum state need be demonstrated; rather, the totality of all defendant's contacts with the forum state must indicate that the exercise of jurisdiction would be proper." Id.; see also Bank Brussels Lambert v. Fiddler, Gonzalez & Rodriguez, 171 F.3d 779, 787 (2d Cir. 1999).

As the amended complaint does not allege that Comerica was ever physically present in New York State, and Lynch's only appearance there was as a social guest of Spano at a hockey game, the cornerstone of the Islanders' personal jurisdiction claim against Comerica must be its participation in the consortium of banks financing the sale. Comerica admits that it extended $5 million in credit to the Islanders, a New York limited partnership, in April of 1997, as part of the Spano purchase. The Credit Agreement between the consortium banks and the Islanders states that it is to be governed by New York State law, and obligates Comerica to provide documents and notices to its colenders, including other New York banks. There is no question that Comerica purposefully entered into the loan agreement in New York, and that it has purposefully availed itself of the benefits and protections of conducting business in New York, at least as to this particular loan. CutCo Industries, 806 F.2d at 365. This single act of lending, coupled with several telephone calls into New York by Comerica concerning the funding of the purchase, is sufficient under New York law to constitute "transacting business" by Comerica in New York State. Bank Brussels Lambert, 171 F.3d at 787; Bluestone Capital Partners v. MGR Funds Ltd., 1999 WL 322658 at * 4 (S.D.N.Y. 1999) ("proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New ...

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