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UNITED COMPUTER CAPITAL CORP. v. SECURE PRODUCTS

September 11, 2002

UNITED COMPUTER CAPITAL CORPORATION, PLAINTIFF,
V.
SECURE PRODUCTS, L.P. AND SECURE PRODUCTS CORPORATION, DEFENDANTS.



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

  MEMORANDUM DECISION AND ORDER

BACKGROUND

A marketing agreement was entered on January 29, 1998, between United Recovery Services Co. ("URS"), a division of plaintiff United Computer Control Corporation ("UCCC"), and defendant Secure Products, L.P. The agreement had to do with a check authentication system developed by Secure Products that protects against counterfeit checks presented for deposit. The authentication system identifies and out-sorts counterfeit checks on the bank's high speed document sorter. The system works with an invisible authentication mark using a trade secret material that can be overtly printed on checks. A laser ink detector ("LID") system, also developed by Secure Products, identifies the unique frequency signal emitted from this material. The LID is integrated into a high-speed IBM 3890 check sorter. The system assists the payer bank in fulfilling current check-processing needs while trimming losses directly ascribed to counterfeit checks.

In October 1997, Secure Products met with URS, a division of United Computer Capital Corporation, to discuss a possible arrangement in which URS would assist in integrating Secure Product's LID device into the IBM 3860 check sorter. URS advised Secure Products that its affiliated company Qwinstar, could develop and install a software interface that would enable the LID detector system to be used in an IBM 3890 check sorter. The parties then negotiated and entered the marketing agreement covering the integration of the LID system into the IBM 3890, and granting URS the exclusive right to sell or lease the LID system to the banking industry.

The work on the integration of the LID system into the IBM check sorter began, but the results URA promised in the marketing agreement were not forthcoming. In a letter dated March 12, 2001, Secure Products gave formal notice to URS to remedy its nonperformance, and requesting URS to make a written response by March 15, 2001. When URS did not respond by that date, Secure Products gave notice of the termination of the marketing agreement. Plaintiff then commenced this action claiming Secure Products breached the marketing agreement by terminating it and refusing to withdraw its termination. The complaint based jurisdiction on the provision of New York Civil Practice Law and Rules ("CPLR") § 302(a)(1) under which a court may exercise jurisdiction over contract and tort claims that arise from a foreign defendant's transaction of business in New York. Defendants then filed the instant motion under Rule 12(b)(2) seeking dismissal of the complaint for lack of jurisdiction over the person because the defendants did not transact any business in New York that would meet the jurisdictional requirements of § 302. Plaintiff has entered opposition to this motion.

As additional evidence that defendants transacted business in New York, plaintiff points out that Secure Products maintains an interactive worldwide website that invites visitors to use the telephone and email to ask Secure Products questions and order its products. Plaintiff postulates that this website's interactive nature, when combined with Secured Products other New York activities, will support a finding that Secured Products is subject to jurisdiction under New York' long-arm statute.

Defendants answer that plaintiffs lawsuit is the alleged breach of the marketing agreement between the parties and maintains, inter alia, that the agreement was formed entirely in the state of New Jersey. Both defendants are located in New Jersey. All meetings between Secure Products and URS concerning the forming of a business relationship between the parties, including the negotiating of the marketing agreement occurred in New Jersey. Correspondence and electronic conferences concerning the establishment of a business relationship took place between the parties in defendants' New Jersey offices. The agreement was signed by Secure Products in New Jersey and sent to URS's New Jersey office, and where URS signed it is not a factor to be considered. The notice of termination of the marketing agreement was mailed from New Jersey by Secured Products.

Secure Products further contends that it did not contemplate either party performing the contract in New York because the technical work of developing the software was to be done at the Minnesota office of URS's subcontractor, Qwinstar, and at URS's facility in Cherry Hill, Nw Jersey. Regarding the marketing functions that URS was to undertake, the LID device was manufactured and sold by Scantek Corporation in Texas; the four LID devices leased by URS had been used in Citibank's facility in Delaware. The marketing agreement provides that the parties contract is governed by New Jersey law. Secure Products further claims that it did it not subject itself to New York jurisdiction by voluntarily attending approximately five meetings in New York over a three year period with three potential customers to assist in the marketing of the LID system, when the marketing agreement did not require that Secured Products participate in such meetings, or did it become subject to New York jurisdiction by merely going to URS's New York office once to attempt to enhance URS's performance of its contractual responsibilities. Additionally, Donald Scuilli, Vice President of Secure Products Corporation, avers that neither Secure Products Corporation nor Secure Products, L.P. has or maintains a website, that neither entity is in any way whatsoever connected to the website identified as, www.secureproducts.com, which is operated by a company known as Secure Products Corp., and lists its telephone number as 630/833-8281, an Illinois area code number. (Doc. # 27).

DISCUSSION

"When responding to a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant." Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). Where, as here, a court relies on pleadings and affidavits, rather than having a "full blown evidentiary hearing," the plaintiff need only make a prima facie showing that the court possesses personal jurisdiction over the defendant. Id. (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). The pleadings and affidavits are construed in the light most favorable to United Computer Capital Corporation resolving all doubts in its favor. CutCo Industries v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986).

Although the allegations of the complaint may be deemed true to test jurisdictional theory of the complaint, defendants here challenge not only the theory but also the facts on which jurisdiction was predicated. Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 153 (2d Cir. 1999)

Where the basis of federal jurisdiction is diversity of citizenship, a federal court in this state applies New York law to determine whether jurisdiction over the defendant may be exercised CutCo Industries, Inc., 806 F.2d at 365. Under New York's long arm statute, Civil Practice Law and Rules ("CPLR") § 302(a)(1), a court may exercise jurisdiction over contract and tort claims that arise from the foreign defendant's transaction of business in New York. Yurman Designs, Inc. v. A.R. Morris Jewelers, 41 F. Supp.2d 453, 458 (S.D.N.Y. 1999); Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, 527 N.Y.S.2d 195, 198, 522 N.E.2d 40 (1988) The person asserting jurisdiction under the long arm statute has the burden of establishing personal jurisdiction. Armouth International, Inc. v. Haband Company, 277 A.D.2d 189, 190, 715 N.Y.S.2d 438, 439 (2d Dept. 2000). In such cases, however, personal jurisdiction may be exercised only as to causes of action that arise from the transaction of business relied upon. Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 153 (2d Cir. 1999). The existence of jurisdiction is determined under the CPLR as of the time of service of the summons and complaint, and not when the cause of action arose. Yurman, 41 F. Supp.2d at 458 n. 2.

To "transact business" in New York, a non-domiciliary must purposefully avail itself of the privilege of conducting activities within New York, thus invoking the benefits and protection of its laws. McKee Electric Company v. Rauland-Borg Corp., 20 N.Y.2d 377, 382, 283 N.Y.S.2d 34, 37-38, 229 N.E.2d 604 (1967) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958)). A court must look to the totality of circumstances to determine the existence of such purposeful activity, and may not subject a defendant to jurisdiction based on "random, fortuitous, or attenuated contacts." K.C.P.L., Inc. v. Nash, 1998 WL 823657, at *4 (S.D.NY. Nov. 24, 1998) (citing CutCo Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986)). It is the "nature and quality," not the amount, of New York contacts which determine whether there has been purposeful activity. Standard Enterprises, Inc. v. Bag-It, Inc., 673 F. Supp. 1216, 1220 (S.D.N.Y. 1987). In judging whether there are sufficient contacts, the New York Court of Appeals has cautioned that courts should not forget that defendants, as a rule, should be subject to suit where they are normally found, that is, at their preeminent headquarters or where they conduct substantial general business activities. Only in ...


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