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Complexions, Inc. D/B/A Complexions Day Spa v. Industry Outfitters

August 9, 2011

COMPLEXIONS, INC. D/B/A COMPLEXIONS DAY SPA, PLAINTIFF,
v.
INDUSTRY OUTFITTERS, INC., A CORPORATION FORMED UNDER THE LAWS OF THE STATE OF FLORIDA, DEFENDANT, AND INDUSTRY OUTFITTERS, INC., A CORPORATION FORMED UNDER THE LAWS OF CANADA, DEFENDANT, AND GREENBANK CUSTOM WOODWORKING, LTD., DEFENDANT. GREENBANK CUSTOM WOODWORKING, LTD., THIRD-PARTY PLAINTIFF,
v.
ZYTEK, INC., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Mae A. D'Agostino, U.S. District Judge:

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

Plaintiff Complexions, Inc. d/b/a Complexions Day Spa ("Complexions" or "plaintiff") commenced this action against defendants Industry Outfitters, Inc. of Florida and Canada ("Industry Outfitters") and Greenbank Custom Woodworking, Ltd. ("Greenbank" or "third-party plaintiff") for breach of contract and breach of warranty.*fn1 Greenbank commenced a third-party action against Zytek, Inc.*fn2 , ("Zytek" or "third-party defendant") alleging breach of warranty, breach of contract and seeking indemnification.*fn3

Presently before the Court is Zytek's motion for an order: (1) dismissing the third-party complaint for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2) or, in the alternative; (2) dismissing the third-party complaint for insufficient service of process or, in the alternative; (3) dismissing the third-party complaint pursuant to 1312(a) of the New York Business Corporation Law or, in the alternative; (4) dismissing the third-party complaint based upon the doctrine of forum non conveniens.*fn4 (Dkt. No. 70).

BACKGROUND

The facts of the case are taken from plaintiff's complaint and third-party plaintiff's complaint and are, for the purpose of third-party defendant's motions, presumed to be true. Complexions is a New York corporation with its principal place of business in Colonie, New York. Industry Outfitters is a Florida and Canadian corporation with its principal place of business in Ontario, Canada. Greenbank is a limited liability company formed under the laws of Canada with its principal place of business in Ontario, Canada. Zytek was a Canadian corporation with its principal place of business at 524 Watson Street East, Whitby, Ontario, Canada. According to Zytek's President, Harlin Gale Schock, Zytek was in the business of manufacturing and selling adhesives, blend solvents and manufactured lacquer coatings, i.e., glue.

In December 2007, plaintiff entered into an agreement with Industry Outfitters wherein Industry Outfitters agreed to design, furnish and install custom cabinetry, display cases, desks and other items at plaintiff's day spa in Colonie, New York for payment in the sum of $231,000.00. Industry Outfitters entered into a subcontract agreement with Greenbank to assemble, furnish and install the cabinetry and casework at the day spa. Shortly thereafter, Zytek sold and delivered adhesive for Greenbank to utilize in the assembly and construction of the custom cabinetry and casework. According to Schock, in September 2008, Zytek sold its assets to Adhpro Adhesives, Inc. ("Adhpro"), another Canadian glue manufacturer.*fn5 After the asset sale, Adhpro's principal place of business became 524 Watson Street East.

Following delivery and installation of the cabinetry and casework, the wood veneer and surfaces of the cabinetry and casework began to delaminate. On July 15, 2010, plaintiff commenced an action against Industry Outfitters and Greenbank alleging four causes of action based in breach of contract and breach of warranty seeking unliquidated damages in an amount expected to exceed $300,000.00. On November 12, 2010, Greenbank commenced a third-party action against Zytek alleging five causes of action for indemnification, breach of warranty, breach of contract and negligence.

DISCUSSION

I. Motion to Dismiss for Lack of Personal Jurisdiction

Zytek moves to dismiss the third-party complaint based upon lack of personal jurisdiction. See Fed. R. Civ. P. 12(b)(2). The amenability of a foreign corporation to suit in a federal court in a diversity action is determined in accordance with the law of the state where the court sits, with "federal law" entering the picture only for the purpose of deciding whether a state's assertion of jurisdiction contravenes a constitutional guarantee. Arrowsmith v. United Press Int'l., 320 F.2d 219, 223 (2d Cir. 1963). District courts resolving issues of personal jurisdiction must therefore engage in a two-part analysis. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). First, they must determine whether there is jurisdiction over the defendant under the relevant forum state's laws. Id. Second, they must determine whether an exercise of jurisdiction under these laws is consistent with federal due process requirements. Id.

Since there has been no discovery and no evidentiary hearing on jurisdiction, third-party plaintiff need make only a prima facie showing that jurisdiction is proper. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 196-97 (2d Cir. 1990). The Court must construe the pleadings and supporting affidavits in the light most favorable to third-party plaintiff. See PDK Labs v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997). The Second Circuit explains:

In deciding a pretrial motion to dismiss for lack of personal jurisdiction a district court has considerable procedural leeway. It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion. If the court chooses not to conduct a full-blown evidentiary hearing on the motion, the plaintiff need make only a prima facie showing of jurisdiction through its own affidavits and supporting materials. Eventually, of course, the plaintiff must establish jurisdiction by a preponderance of the evidence, either at a pretrial evidentiary hearing or at trial. But until such a hearing is held, a prima facie showing suffices, notwithstanding any controverting presentation by the moving party, to defeat the motion.

Marine Midland Bank N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981) (citations omitted). "[A] prima facie showing of jurisdiction . . . means that plaintiff must plead facts which, if true, are sufficient in themselves to establish jurisdiction." Darby Trading Inc. v. Shell Int'l Trading and Shipping Co. Ltd., 568 F.Supp.2d 329, 333 -334 (S.D.N.Y. 2008) (citation omitted). A plaintiff may "make this showing through [its] own affidavits and supporting materials[,] containing an averment of facts that, if credited . . ., would suffice to establish jurisdiction over the defendant." Id. (citation omitted).

A. N.Y. C.P.L.R. § 302(a)(3)(ii)*fn6

Third-party plaintiff contends that Zytek is subject to specific jurisdiction under New York's long-arm statute because the third-party claims arise from third-party defendant's commission of a tort outside New York causing injury to plaintiff in New York. See N.Y. C.P.L.R. § 302(a)(3)(ii).*fn7 Under C.P.L.R. § 302(a)(3)(ii), personal jurisdiction may be asserted over a non-domiciliary if the non-domiciliary "commits a tortious act without the state" injuring a person within New York, and (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce. Zytek concedes, for the purposes of this motion only, that Zytek's production of the glue at issue constitutes commission of tort outside of New York. Therefore, Zytek's motion focuses on the remaining factors in § 302(a)(3)(ii). To wit, Zytek argues that Greenbank cannot establish the "foreseeability" requirement and further, that Zytek did not derive substantial revenue from interstate or international commerce.

"The test of whether a defendant expects or should reasonably expect his act to have consequences within the State is an objective rather than subjective one." Kernan v. Kurz-Hastings, Inc., 175 F.3d 236, 241 (2d Cir. 1999) (citation omitted). "New York courts have asserted that the simple likelihood or foreseeability 'that a defendant's product will find its way into New York does not satisfy this element, and that purposeful availment of the benefits of the laws of New York such that the defendant may reasonably anticipate being haled into New York court is required'". Id. (to avoid conflict with federal constitutional due process limits, New York Courts apply the "reasonable expectation" requirement). "Stated differently, the foreseeability requirement is not satisfied unless there are tangible manifestations showing that the nondomiciliary defendant either should have known where its product was destined or was attempting to reach a New York market." Yash Raj Films (USA) Inc. v. Dishant.com LLC, 2009 WL 4891764, at *10 (E.D.N.Y. 2009) (quoting Capitol Records, LLC. v. VideoEgg, Inc., 611 F.Supp.2d 349, 362 (S.D.N.Y. 2009)). "[The] simple likelihood . . . that a defendant's product will find its way into New York" does not constitute foreseeability of harm in the state for purposes of § 302(a)(3) - it "must be coupled with evidence of a purposeful New York affiliation." Id. (citing Kernan, 175 F.3d at 241).

In addition to the foreseeability requirement, to establish jurisdiction under this section of the long arm statute, third-party plaintiff must also establish that Zytek derives substantial revenue from interstate or international commerce. Substantial revenue can mean either a substantial sum of money or that the defendant's interstate revenue is a substantial portion of its total revenue. Launer v. Buena Vista Winery, Inc., 916 F.Supp. 204, 211 (E.D.N.Y. 1996). "Among the most important facts of each case are the overall nature of the defendant's business and the extent to which he can fairly be expected to defend lawsuits in foreign forums." Ronar, Inc. v. Wallace, 649 F.Supp. 310, 318 (S.D.N.Y.1986). Court must assess (1) the percentage of a party's overall revenue derived from interstate or foreign commerce; and (2) the absolute revenue generated by a defendant's interstate or international commerce. Light v. Taylor, 2007 WL 274798, at *4 (S.D.N.Y. 2007) (citations omitted). The amount of business that must be conducted to satisfy this standard "is less than that which is required to satisfy the conventional doing business standard". Hollins v. U.S. Tennis Ass'n, 469 F.Supp.2d 67, 77 (E.D.N.Y. 2006). Substantial revenue can be measured in an absolute or relative sense or by qualitative or quantitative means. Jin v. EBI, Inc., 2006 WL 3335102, at *5 (E.D.N.Y. 2006). Even if the amount of revenue a company generates in New York is only 1% percent of its total revenue, it can still be considered substantial if the absolute amount appears substantial. Id. (citing Ball, 902 F.2d at 199). On a motion to dismiss for lack of jurisdiction pursuant to § 302(a)(3), defendant has the burden of showing the absence of substantial revenue. Ingraham v. Carroll, 90 N.Y.2d 592, 604 (1997).

"The year in which the complaint is filed is the proper point in time for determining whether defendant . . . meets the 'substantial revenue' prong of 302(a)(3)(ii)." Bank of California v. Smith Barney, Inc., 1997 WL 736529, at *5, n. 5 (N.D.N.Y. 1997) (citing Ball, 902 F.2d at 199- 200); Drake v. Lab. Corp. of Am. Holdings, 2007 WL 776818, at *10 (E.D.N.Y. 2007). However, courts will also consider a period of years around the time that the complaint was filed. Drake, 2007 WL 776818, at *10 (citation omitted); see also Traver v. Officine Meccaniche Toshci SpA, 233 F.Supp.2d 404, 413-14 (N.D.N.Y. 2002) (citing Barricade Books, Inc. v. Langberg, 2000 WL 1863764, at *5 (S.D.N.Y. 2000)) (the court considered the defendant's revenues over a three-year period).

In support of the motion, third-party defendant submitted an affidavit from Harlin Gale Schock, the owner of "580090 Ontario Inc.", the company formerly known as Zytek. Between 2002 and 2008, Schock was President and owner of Zytek. Schock makes the following assertions regarding Zytek's business:

* Zytek never maintained an office or place of business anywhere in ...


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