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Laross Partners, LLC v. Contact 911 Inc.

July 10, 2012

LAROSS PARTNERS, LLC,
PLAINTIFF,
v.
CONTACT 911 INC., AND FAMILYCONTACT911.COM, LLC,
DEFENDANTS.



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

MEMORANDUM OF DECISION AND ORDER

The Plaintiff LaRoss Partners, LLC ("LaRoss") commenced this action against Contact 911 Inc., ("Contact") and FamilyContact911.com LLC ("Family") based on claims of breach of contract, unjust enrichment, fraud, and conversion. The Defendants now move to dismiss the Plaintiff's amended complaint pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b)(2) for lack of personal jurisdiction against Family and pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim. For the reasons stated below, the Defendants' motion to dismiss for lack of personal jurisdiction is denied and the motion to dismiss for failure to state a claim is granted in part and denied in part.

I. BACKGROUND

The Plaintiff is a New York corporation that provides various services for companies like the Defendants, which are Florida corporations that provide emergency contact solutions. The purpose of an emergency contact service is that in the midst of a catastrophic event, such as a terrorist attack or natural disaster, an individual can convientiently pass along a message in an automated fashion to those in one's "Contact List". This service is charged to customers on their phone bill.

On August 3, 2007, LaRoss and Contact entered into an agreement (the "Agreement") under which LaRoss would provide a number of services for Contact's internet based emergency service titled "Family Contact 911".

One type of service LaRoss agreed to provide was to apply and process for Local Exchange Carrier ("LEC") approval, specifically on behalf of the Family entity. LaRoss also contracted to provide a marketing program to sell the Family Contact 911 product. In addition, LaRoss agreed to perform Family Contact 911's billing. LaRoss used a third-party intermediary, the clearing hosue known as ILD Telecommunications ("ILD"), for this purpose. Under the Agreement, LaRoss would provide the billing services, retain a portion of the revenue, and remit the rest to Contact. In particular, LaRoss claims that it was to be paid for its services according to the terms of the Agreement, which was 40% of the Defendants' monthly billing settlement "net revenues", as that term is defined in the Agreement.

The initial term of the Agreement was set at three years. The Agreement contained a forum selection clause, which stated "If such disputes cannot be resolved, then both retain the right to pursue legal or other remedies; with the venue for all such remedies to be set in Nassau County, State of New York, exclusively." (Pl. Mem. in Opposition Ex. 1)

According to the Plaintiff, LaRoss provided the agreed services and by the terms of the Agreement, the revenues were split, until in or around March 2009. Throughout this time, the Plaintiff claims to have distributed the shared revenues to both the Contact and Family entities. The Plaintiff first asserts that, in or around March 2009, the Defendants communicated to the Plaintiff that they would take over the billing services, but that the remaining provisions of the Agreement would remain in force, including the revenue sharing provision. LaRoss claims that the Defendants made only one further payment of the LaRoss' revenue share, in March of 2009, despite subsequent assurances from the Defendants that the Plaintiff would be receiving its share of the net revenues realized from the billing to the Family Contact 911 customers under the Agreement.

On or about March 2, 2011, LaRoss filed suit in Nassau County Supreme Court, pursuing causes of action for breach of contract, fraud, conversion, accounting, and attorneys' fees against both parties, as well as an unjust enrichment claim against Family. On April 21, 2011, the case was removed to this Court.

On October 6, 2011, Family moved to dismiss the Plaintiff's amended complaint for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2) and, in the alternative, to dismiss the Plaintiff's second (unjust enrichment), third (fraud), fourth (conversion), fifth (accounting) and sixth (attorney's fees) causes of action, for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Contact joined in moving to dismiss the Plaintiff's third, fourth, fifth, and sixth causes of action for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). The Plaintiff opposes both motions.

II. AS TO PERSONAL JURISDICTION

A. Legal Standards

1. Standard on a Motion to Dismiss for Lack of Personal Jurisdiction

A plaintiff has the burden of establishing personal jurisdiction to defeat a Rule 12(b)(2) motion to dismiss. DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001) (quoting Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999)). In deciding a motion to dismiss for lack of personal jurisdiction, the Court may rely on materials that are outside the pleadings, including any affidavits submitted by the parties. DiStefano, 286 F.3d at 84. However, where, as here, the Court "relies on the pleadings and affidavits, and chooses not to conduct a 'full-blown evidentiary hearing,' plaintiffs need only make a prima facie showing of personal jurisdiction over the defendant." Penguin Group (USA) Inc. v. American Buddha, 609 F.3d 30, 34--35 (2d Cir. 2010); Porina v. Marward Shipping Co., Ltd., 521 F.3d 122, 126 (2d Cir. 2008). "Such a showing entails making legally sufficient allegations of jurisdiction, including an averment of facts that, if credited, would suffice to establish jurisdiction over the defendant." Penguin, 609 F.3d at 35 (internal quotations marks and alterations omitted). Furthermore, materials presented by the plaintiff should be construed in the light most favorable to the plaintiff and all doubts resolved in its favor. See A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79--80 (2d Cir. 1993).

2. Forum Selection Clause

"Parties can consent to personal jurisdiction through forum-selection clauses in contractual agreements." D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006) (citing Nat'l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315--16, 84 S.Ct. 411, 11 L. Ed. 2d 354 (1964)). If the forum selection clause is both valid and applicable, "it is not necessary to analyze jurisdiction under New York's long-arm statute or federal constitutional requirements of due process." American S.S. Owners Mut. Protection and Indem. Ass'n, Inc. v. Am. Boat Co., No. 11 Civ. 6804, 2012 WL 527209, at *2 (S.D.N.Y. Feb. 17, 2012) (quoting Export--Import Bank of the U.S. v. Hi--Films S.A. de C. V., No. 09 Civ. 3573, 2010 WL 3743826, at *4 (S.D.N.Y. Sep. 24, 2010)).

There is a strong presumption in favor of upholding the enforceability of forum selection clauses. Bluefire Wireless, Inc. v. Cloud9 Mobile Commc'ns, Ltd., No. 09 Civ. 7268, 2009 WL 4907060, at *3 (S.D.N.Y. Dec. 21, 2009) ("[t]he Second Circuit has endorsed an expansive reading of the scope of forum selection clauses, in keeping with the policy favoring their use.") (citations omitted); see M/S Bremen v. Zapata Off--Shore Co., 407 U.S. 1, 9--10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1361 (2d Cir. 1993). Forum selection clauses play a crucial role in ensuring predictability in contract formation. In re Refco Inc., Securities Litigation, No. 08 Civ. 3086, 2009 WL 5548666, at *5 (S.D.N.Y. Nov. 16, 2009) ("Both the Supreme Court and the Second Circuit have recognized that forum selection clauses have economic value and should be enforced in accordance with the expectations of the parties.") (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594, 111 S. Ct. 1522 , 113 L. Ed. 2d 622 (1991); M/S Bremen, 407 U.S. at 13--15; Aguas Lenders Recovery Group, LLC v. Suez, S.A., 585 F.3d 696, 699--700 (2d Cir. 2009); Roby, 996 F.2d at 1363).

To enforce a forum selection clause, a party must show that: "(1) the clause was reasonably communicated to the party resisting enforcement; (2) the clause was mandatory and not merely permissive; and (3) the claims and parties involved in the suit are subject to the forum selection clause." Tropp v. Corporation of Lloyd's, 385 Fed. App'x 36, 37 (2d Cir. 2010). Even if all three criteria are met, the opposing party may "make a sufficiently strong showing that 'enforcement would be unreasonable or unjust, or that the clause was invalid for such reasons as fraud or overreaching."' Phillips v. Audio Active Ltd., 494 F.3d 378, 383--84 (2d Cir. 2007) (quoting M/S Bremen, 407 U.S. at 15).

B. As to Whether the Forum Selection Clause is Enforceable Against Family

In the instant case, the Defendant Family moves to dismiss for lack of personal jurisdiction and asserts that, as a non-signatory, they are not bound by the forum selection clause in the Agreement. The dispute as to the applicability of the forum selection clause in this context largely concerns whether Family is an entirely separate company from Contact so that it should be treated as such under the law, or whether there are enough ties between Family and Contact so that it is fair and just to treat them similarly, at least for jurisdictional purposes at this stage of the proceedings. As set forth below, although the Plaintiff has the burden to demonstrate a prima facie case of personal jurisdiction, because the facts presented and because the materials presented by the Plaintiff are construed in the light most favorable to the Plaintiff, the Court finds that it is proper to apply the forum selection clause to the Family entity.

1. As to Whether the Clause Was Reasonably Communicated and Mandatory

As an initial matter, the Defendants do not claim that they were unaware of the forum selection clause or that the clause was permissive rather than mandatory. This alone would satisfy the first two prongs. Am. Boat, 2012 WL 527209, at *3 ("American Boat does not claim either that the forum selection clause was not reasonably communicated to it, or that the clause is permissive rather than mandatory. The first two prongs of the governing standard are, therefore, satisfied."); KTV Media Intern., Inc. v. Galaxy Group, LA LLC, 812 F. Supp. 2d 377, 384 (S.D.N.Y. 2011) ("Plaintiff does not contend that it was unaware of either the Galaxy Operating Agreement or the forum selection clause contained therein when it allegedly acquired those interests.")

Moreover, the Court notes that Nikolas Spiridellis, one of Family's two managing members, is also the sole officer of Contact, as well as a signatory to the Agreement between Contact and LaRoss. (Declaration of Cynthia Butera Ex. 1, Opp. Exhibit 1.) Therefore, it would be illogical for Family to disclaim knowledge of the relevant forum selection clause. See KTV, 812 F. Supp. 2d at 384 (holding forum selection clause to be reasonably communicated when "Kimberg - registered agent for KTV Media International - has signed many, if not all, of the agreements executed between the parties . . . ")

The Court also notes that the language "with the venue for all such remedies to be set in Nassau County, State of New York, exclusively" is clearly mandatory. See S.K.I. Beer Corp. v. Baltika Brewery, 612 F.3d 705, 708 (2d Cir. 2010) ("A forum selection clause is viewed as mandatory when it confers exclusive jurisdiction on the designated forum or incorporates obligatory venue language.") (quoting Phillips, 494 F.3d at 386); Brennen v. Phyto--Riker Pharms., Ltd., No. 01 Civ. 11815, 2002 WL 1349742, at *3 (S.D.N.Y. June 20, 2002) ("inclusion of the phrase 'exclusive jurisdiction' indicates an intent that any dispute . . . be filed in one of the fora specified").

2. As to Whether the Claims and Parties Involved are Subject to the Forum Selection Clause

a. Non- Signatories

The primary argument of the Defendant Family in support of its motion to dismiss for lack of personal jurisdiction is that Family was not a signatory to the Agreement between Contact and LaRoss, and is therefore not bound by the forum selection clause contained in the Agreement. As an initial matter, the Court notes that Family's non-signatory status does not, as a general matter, prevent it from being bound by the forum selection clause. See Aguas, 585 F.3d at 701 ("We find ample support for the conclusion that the fact a party is a non-signatory to an agreement is insufficient, standing alone, to preclude enforcement of a forum selection clause.") (collecting cases); Novak v. Tucows, Inc., No. 06 Civ. 1909, 2007 WL 922306, at *13 (E.D.N.Y. Mar. 26, 2007) ("Further, at least two courts within this Circuit have held that '[i]t is well established that a 'range of transaction participants, parties and non-parties, should benefit from and be subject to forum selection clauses."') (quoting Weingard v. Telepathy, Inc., No. 05 Civ. 2024, 2005 WL 2990645, at *5 (S.D.N.Y. Nov. 7, 2005) (internal citations omitted)).

In the context of arbitration agreements, the Second Circuit has noted that non-signatories may be bound to a contract's venue provision pursuant to at least five different theories: "(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel." Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 352 (2d Cir. 1909) (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995)). In addition, a number of courts in this Circuit have bound non-signatories that are "closely related" to one of the signatories to the contract containing the forum selection clause. See, e.g., Refco, 2009 WL 5548666, at *10 ("After Aguas, there can be no dispute that forum selection clauses will be enforced even against non-signatories where they meet the "closely related" standard"); KTV Media, 812 F. Supp. 2d at 386 ("A movant seeking dismissal may enforce a forum selection clause against a non-signatory where the non-signatory is "closely related" to one of the signatories") (collecting cases).

Thus, the Court will assess whether the forum selection clause should be applicable to Family under the theories of estoppel, assumption, and "closely related".

b. Estoppel

In a number of cases involving arbitration clauses, the Second Circuit has held that a nonsignatory is estopped from denying its obligation to arbitrate when it received a 'direct benefit' from a contract containing an arbitration clause. Tencara, 170 F.3d at 353 ("A party is estopped from denying its obligation to arbitrate when it receives a "direct benefit" from a contract containing an arbitration clause."); Thomson--CSF, 64 F.3d at 779 ("Had Thomson directly benefitted from the Working Agreement by seeking to purchase equipment from E & S or enforcing the exclusivity provisions of the Agreement, it would be estopped from avoiding arbitration."); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993) (estopping a party from denying its obligation to arbitrate where it knowingly accepted the benefits of the agreement containing an arbitration clause). Thus, it is clear that this theory of enforceability is valid in the arbitration context.

However, whether the estoppel theory is valid in the forum selection context is the more relevant inquiry. Certainly, a number of courts in this Circuit and others have espoused the general principle that a party is estopped from denying a contract provision when it has directly benefited from the contract. American Boat, 2012 WL 527209, at *4 ("Under this 'direct benefits theory' of estoppel, a party which is a non-signatory to a contract, but which nonetheless receives a direct benefit from that contract, is estopped from seeking exclusion from provisions of the contract."); In re Refco, Inc. Securities Litig., No. 07 Civ. 11604, 2008 WL 2185676, at *5 (S.D.N.Y. May 21, 2008) ("The lack of a signature on a contract does not affect its validity where the non-signing party received the contract and knowingly accepted its benefits."). Of importance, courts in this Circuit have specifically applied the theory of direct benefits estoppel to cases involving forum selection clauses. See American Boat, 2012 WL 527209, at *5 ("Under the direct benefits theory of estoppel, American Boat is, therefore, estopped from arguing that it is a non-Member and hence not subject to the forum selection clause."); Refco, 2009 WL 5548666, at *9 ("It is well-settled that a party seeking to obtain the benefits of a contract must also accept its burdens, including contractual forum selection.") (citing Ana Distribution Inc. v. CMA--CGM (America) Inc., 329 F. Supp. 2d 565, 567 (S.D.N.Y. 2004)). Furthermore, in Hellenic Investment Fund, Inc. v. Det Norske Veritas, the Fifth Circuit interpreted ...


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