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Steel v. Watch Hill Management Corp.

March 16, 2009

KIMBERLY STEEL, PLAINTIFF,
v.
WATCH HILL MANAGEMENT CORPORATION, WATCH HILLINVESTMENT PARTNERSL.P., PROVIDENCE INVESTMENT MANAGEMENT, LLC, AND RUSSELL JEFFREY DEFENDANTS.



The opinion of the court was delivered by: Georgeb. Daniels, United States District Judge

MEMORANDUM DECISION AND ORDER

Plaintiff Kimberly Steel commenced this action against defendants Watch Hill Management Corp. ("W.H. Management"), Watch Hill Investment Partners L.P. ("W.H. Ptnrs."), Providence Investment Management, L.L.C. ("Providence"), and Russell Jeffrey. Plaintiff seeks to recover bonuses allegedly owed to her pursuant to an employment agreement effective February 8, 1995 that she entered into with W.H. Management. Defendants Jeffrey and Providence moved to dismiss this action for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure or, in the alternative, to transfer venue to the district court in Rhode Island under 28 U.S.C. § 1404(a). Defendants' motion is denied.

NEW YORK CONTACTS

Steel, an Idaho resident, was employed by W. H. Management, a New York corporation, as its Managing Director of Investment relations from February 1995 until W. H. Management terminated plaintiff's employment on January 28, 2004. Complaint at ¶¶ 7, 19. The Employment Agreement outlined the terms of her employment and stated that she would "manage investor relations and ... provide administrative, management[,] and marketing services for" W.H. Management, W.H. Ptnrs., also a New York corporation, and the Watch Hill Fund L.P. ("Watch Hill"), a limited partnership in which W.H. Ptnrs. was the general partner. See Emp. Agmt. at 1; Complaint at ¶ 8. For her services, W.H. Ptnrs. and W.H. Management agreed "to pay Steel in perpetuity a quarterly bonus based on the amount of investments in W.H. Ptnrs. by limited partners who are introduced by Steel to W.H. Ptnrs." Agreement at 2-3. The Employment Agreement further stated:

In the event the General Partner or any affiliate thereof establishes, acts as general partner to, manages, operates or controls another securities investment partnership, securities investment company, securities investment fund or securities investment account, Steel's bonus computation hereunder will, in addition to the capital accounts of Referred Limited Partners*fn1 in [W.H. Ptnrs.], include and be based, in addition, on the capital accounts of Referred Limited Partners in any such other securities investment partnership, securities investment company, securities investment fund or securities investment account. Id. at 3.

The parties to the Employment Agreement agreed that they would submit to binding arbitration if a dispute arose under the contract. Id. at 5. That arbitration was to be conducted in New York, pursuant to the rules of the American Arbitration Association. Id. They further stipulated that the Employment Agreement would be construed under New York law. Id.

When Steel entered into the Employment Agreement, defendant Jeffrey, a resident of Rhode Island, was a general partner of W.H. Ptnrs. Complaint at ¶ 10; Affidavit of Russell Jeffrey dated May 6, 2008 ("May 6th Jeffrey Aff.") at ¶ 1. Along with David Weisenberger, another General Partner of W.H. Ptnrs, Jeffrey executed the guaranty contained in the Employment Agreement on behalf of W.H. Ptnrs. See Agreement at 6. The Guaranty provided that W. H. Ptnrs. would insure "full and prompt payment" of W.H. Management's obligations to plaintiff. See May 6th Jeffrey Aff. at ¶ 6; Complaint at ¶ 15.*fn2

In December 2001, Jeffrey resigned from his position at W.H. Ptnrs. See June 4th Jeffrey Aff. at ¶ 3. In 2004, Jeffrey founded defendant Providence, a hedge fund incorporated in the State of Delaware that has its primary office in Rhode Island. See May 6th Jeffrey Aff. at ¶¶ 7, 9; see also Complaint ¶¶ at 10-12. Plaintiff alleges that on Providence's behalf, Jeffrey "solicited and/or accepted investments from Referred Limited Partners that Steel had introduced to Watch Hill" pursuant to the Employment Agreement. Complaint at ¶ 24. Plaintiff claims that she is entitled to quarterly bonuses based on investments Providence has received from those Referred Limited Partners and that Providence has tortiously interfered with Jeffrey's duties in ensuring W.H.Ptnr.'s performance of its obligations under the Guaranty. Complaint at ¶ 30-31.

On or about September 10, 2007, plaintiff served a demand for arbitration on W. H. Management, W.H. Ptnrs., Jeffrey, and Providence, seeking to recover allegedly unpaid bonuses. Kimberly Steel Affidavit dated May 23, 2008 ("Steel Aff.") at ¶ 17.*fn3 Defendants Jeffrey and Providence moved by order to show cause filed in the Supreme Court of the State of New York, New York County for a stay of arbitration on the ground that they were not parties to the arbitration agreement. See May 6th Jeffrey Aff., Ex. B at 3. In an order dated January 14, 2008, the New York Supreme Court granted defendants' petition to stay the arbitration. Id. at 8.

In support of their motion to dismiss, defendants argue that their business contacts in New York are insufficient to provide a statutory basis for jurisdiction under New York law. Specifically, Jeffrey denies that he has "transacted business in New York [] or entered into a contract to supply goods or services in New York ... upon which plaintiff makes her claim." May 6th Jeffrey Aff. at ¶ 16. Jeffrey also avers that he does not "have a New York office, bank account or property" and that he does not pay New York taxes. Id. at ¶ 17. He does, however, admit that he is an executive officer of American Capital Agency Corporation, a company with offices in New York. See Affidavit of Russell Jeffrey dated June 4, 2008 ("June 4th Jeffrey Aff.") at ¶ 19.*fn4

With respect to Providence's New York contacts, Jeffrey affirms that the company does not "have a New York office, bank account or property" and does not pay New York taxes. June 4th Jeffrey Aff. at ¶ 7. Jeffrey also contends that Providence does not "solicit business" in New York because it is prohibited from generally soliciting clients under Rule 502( c) of Regulation D of the Securities Act of 1933. Id. at ¶ 17; see also 17 C.F.R. § 230.502 (c) (2007). Jeffrey concedes that Providence's Senior Portfolio Manager, Raymond Yu, resides in New York, works for Province on a consistent basis from his New York residence, and pays New York income taxes. June 4th Jeffrey Aff. at ¶¶ 9, 10; see also Steel Aff. at ¶¶ 19(e) ("Mr. Yu performs virtually all of his duties for Providence from his Oyster Bay, New York home"); 20 ("Raymond Yu is a Vice President of American Capital Agency Management, LLC and a Vice president and Principal of American Capital"). However, Jeffrey notes, "Providence does not list Mr. Yu's home address as one of its offices" and "nothing that he does is unique to New York." June 4th Jeffrey Aff. at ¶ 14.

Plaintiff argues that because Jeffrey and Providence made general appearances in the New York courts in connection with their motion to stay arbitration of plaintiff's claims, they are now estopped from raising objections to this Court's exercise of personal jurisdiction in this action. See Pl. Opp. Memo. at 3; Steel Aff. ¶ 18. Additionally, plaintiff alleges, based on documentary evidence submitted with her affidavit, that Providence regularly conducts business with various New York securities firms and investment banks. Id. at 19. Plaintiff also maintains that Providence's "Legal Representative" and accounting firms are all located in New York City. Id.

JURISDICTIONAL REQUIREMENTS

Prior to discovery, a plaintiff facing a motion to dismiss pursuant to Rule 12(b)(2) need only make a prima facie showing that the exercise of jurisdiction is proper. Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990). At that preliminary stage, jurisdiction may be established on the basis of allegations alone, and all averments of jurisdictional facts are accepted as true. In re Magnetic Audiotape Antitrust Lit., 334 F.3d 204, 206 (2d Cir. ...


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