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January 14, 2003


The opinion of the court was delivered by: Charles S. Haight, Jr., Senior United States District Judge

Plaintiff Network Enterprises ("Network") named Michael D. Allweiss as an additional party defendant in an amended complaint which this Court granted Network leave under Rule 21, Fed.R.Civ.P., to file and serve. See Memorandum Opinion and Order reported at 2002 WL 31050846, No. 01 Civ. 11765 (S.D.N.Y. Sept. 12, 2002) (the "September 12 Opinion" or "Opinion"). The Opinion, familiarity with which is assumed, describes the underlying facts of the case.

The amended complaint alleges that corporate defendant APBA Offshore Productions, Inc. ("Offshore") breached its contract with Network. At ¶¶ 22-33, the amended complaint describes the conduct of Allweiss (the only individual connected with Offshore with whom Network dealt) which, on Network's theory of the case, was intended to and succeeded in causing Offshore to renege on its contractual obligations to Network, with consequent economic damage to Network. The amended complaint alleges claims against Allweiss on an alter ego theory (Third Claim for Relief) and for fraudulent conveyance (Fourth Claim). Allweiss now moves to dismiss the amended complaint pursuant to Rule 12(b)(2), Fed.R.Civ.P., for lack of personal jurisdiction over him. More recently, related disputes have arisen about Network's efforts to obtain discovery. This Opinion resolves all outstanding issues.

I. Allweiss' Motion to Dismiss

The September 12 Opinion, granting Network leave to file an amended complaint containing those claims against Allweiss, was preceded by an exchange of briefs in which counsel for Allweiss contended, inter alia, that the Court would lack personal jurisdiction over him. In the September 12 Opinion I discussed personal jurisdiction over Allweiss by viewing the question in the context of Network's alter ego theory against him:

In this case the existence of a viable alter ego claim necessarily determines a jurisdictional basis for suit over Allweiss. If Allweiss is the alter ego of Offshore, then all of Offshore's activities are imputed to him and he is bound by the forum selection clause in the Time Buy Agreement and all other aspects of it. Thus, if the alter ego theory survives dismissal, a jurisdictional basis for suit against Allweiss exists.
2002 WL 31050846, at *3 (emphasis added). Implicit in this analysis, if not explicit, is the assumption that the Court would not evaluate Network's alter ego theory for legal sufficiency until the facts had been further developed by discovery, an evidentiary hearing, or a combination of the two.

In these circumstances, Allweiss' present self-styled motion to dismiss for lack of personal jurisdiction may arguably be regarded as a motion for reconsideration or reargument of the September 12 Opinion, in which event it would be untimely, since Local Civil Rule 6.3 requires such motions to be served within 10 days after docketing "of the court's determination of the original motion," and Allweiss' present motion is dated October 18, 2002. Timeliness under Rule 6.3 being jurisdictional in nature, the Court has not only the authority but the obligation to raise the question sua sponte. But I think it is better to examine Alleweiss' present motion on its merits; and, having done so, find none.

The facts that a party asserting an alter ego theory of liability must prove under the governing New York law are well established. However, given the present procedural posture of this case, Allweiss' motion to dismiss challenges Network's pleading, not its proof. That is to say, Allweiss argues that Network's complaint does no more than allege facts which, even if proven, would not sustain alter ego liability on the part of Allweiss under the governing law.

In their discussion of that governing law, Allweiss' briefs cite, among others, two typical cases: Wm. Passalacqua v. Resnick Developers South, Inc., 933 F.2d 131 (2d Cir. 1991), and Carte Blanche (Singapore) PTE., Ltd. v. Diners Club International, Inc., 758 F. Supp. 908 (S.D.N.Y. 1991). Both decisions apply New York law. In Carte Blanche Judge Leisure said that alter ego liability attaches "if the following elements are established: (1) control amounting to complete domination with respect to the transaction attacked; (2) use of such control to perpetrate a fraud or wrong, including a violation of a positive legal duty; and (3) the control and breach of duty must proximately cause the injury complained of," 758 F. Supp. at 914 (citations omitted), elements which Judge Leisure divided under the captions "First Prong: Domination" and "Second Prong: Fraud or Wrong." Id. at 914-15. In Carte Blanche a franchisee that had recovered a judgment entered on an arbitration award against the franchisor sought to satisfy the judgment against the franchisor's parent corporation on an alter ego theory. Following full discovery, including the depositions of the key individuals, Judge Leisure denied cross-motions for summary judgment on the alter ego claim, concluding that resolution of the factual issues revealed by the record "requires the sort of weighing of evidence and evaluation of credibility in which the Court cannot properly engage on a motion for summary judgment." Id. at 917.*fn1 In Passalacqua the Second Circuit reversed a judgment entered on the jury's verdict in favor of defendants on plaintiffs' alter ego claim and remanded for a new trial because the trial judge "incorrectly instructed the jury that plaintiffs were required to plead fraud. New York law, as discussed, permits the corporate form to be disregarded where excessive control alone causes the complained of loss." 933 F.2d at 141. See also Electronic Switching Industries, Inc. v. Paradyne Eltronics Corp., 833 F.2d 418, 424 (2d Cir. 1987) ("fraud or wrong" prong satisfied by proof that "domination was used to commit wrong, fraud, or the breach of a legal duty, or a dishonest or unjust act in contravention of plaint if's legal rights, and that the control and breach of duty proximately caused the injury complained of") (emphasis added); Gorrill v. Icelandair/Flugleider, 761 F.2d 847, 853 (2d Cir. 1985) (same). Consistent with that line of authority, Judge Leisure stated in Carte Blanche that "a stripping of the assets of the subsidiary by the parent, motivated by a desire to render the subsidiary judgment proof, would constitute a 'fraud or wrong' under the Gorrill test." 758 F. Supp. at 917.*fn2

The careful reader will have observed that the cited decisions in Passalacqua and Carte Blanche were both decided on detailed evidentiary records: the former after trial, and the latter after full discovery. In the case at bar, there has been only limited discovery, and that with relation to Offshore, not the part played by Allweiss; consequently, Allweiss' challenge to Network's alter ego claim is limited to an attack upon the legal sufficiency of the allegations in the complaint. In that procedural posture, I treat Network's factual allegations as true, and draw any reasonable inferences in its favor.

Applying those familiar principles to Network's alter ego claim against Allweiss,*fn3 it is readily apparent that Network's allegations, while understandably sparse, are sufficient to survive a motion to dismiss. Allweiss was the only character representing defendants on stage during the drama culminating in Offshore's refusal to perform its contract with Network; whether that dominant role as an actor translates into "domination" for purposes of alter ego analysis furnishes a legitimate subject of discovery. The allegation that "Offshore now claims to have no assets" sufficiently suggests asset stripping, a recognized "fraud or wrong" for alter ego purposes. And it is fair to infer from Network's allegations that if assets were stripped from Offshore to make it judgment proof., Allweiss was the economic beneficiary of the operation. Since Network's amended complaint adequately alleges alter ego liability on the part of Allweiss, Allweiss is not entitled on the present record to an order dismissing the complaint for lack of personal jurisdiction. Allweiss may, if so advised, revisit the issue on a Rule 56 motion after discovery has been completed.*fn4

For the reasons expressed in the September 12 Opinion and in this one, I deny Allweiss' present motion to dismiss the amended complaint for lack of jurisdiction over his person.

II. Discovery Disputes

In June 2002 Network served a Second Request for Production of Documents on defendant Offshore. In July 2002 Network served a subpoena for the production of documents upon non-party APBA-Offshore Power Boat Racing, LLC ("LLC"). It appears from the most recent correspondence of counsel that full production has not been made in response to these demands, and some of them, at least, are in dispute.

The September 12 Opinion denied leave to Network to amend its complaint so as to add claims against LLC. 2002 WL 31050846, at *7-*8. Allweiss' motion to dismiss the amended complaint as to him was interposed before these discovery disputes were ...

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