The opinion of the court was delivered by: Spatt, District Judge.
U.S. DISTRICT COURT EASTERN DISTRICT OF NEW YORK LONG ISLAND OFFICE MEMORANDUM OF DECISION AND ORDER
The Plaintiff Emerald Asset Advisors, LLC ("Emerald" or "the Plaintiff") commenced this diversity action against the Defendants H. Cy Schaffer ("Schaffer" or "the Defendant"), Susan Wong, Mastermind Venture Partners ("MVP"), Shane A. Swetel, Selective Development, LLC ("Selective"), Walter Ross, and Ross Pacific Trade Corporation ("Ross Pacific") (collectively the "Additional Defendants"), seeking the return of $200,000 that Emerald transmitted to the Defendant's escrow account as part of a deal where MVP would obtain financing for Emerald's subsidiary company, Eternal Image, Inc. ("Eternal"). Presently before the Court is: (1) a motion by the Defendant Schaffer pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 12(b)(2) to dismiss the complaint for lack of personal jurisdiction or, in the alternative, for a change of venue pursuant to 28 U.S.C. § 1406 or § 1404(a); and (2) a motion by the Plaintiff for sanctions against Schaffer pursuant to Fed. R. Civ. P. 11. For the reasons set forth below, both motions are denied.
Emerald is a limited liability company, formed under the laws of Delaware and qualified to do business in the State of New York. The company is in the business of financing and capitalizing businesses and business ventures through methods such as capital infusions, investments, bridge loans, and debentures. (Compl. at ¶ 5.) The Defendant H. Cy Schaffer is an attorney admitted to practice law in the State of California. In addition, the Complaint states that, upon information and belief, he is also currently practicing law in the State of Nevada and lives there.
The Defendant Susan Wong is a citizen of the State of Connecticut. MVP is a partnership formed and/or existing under the laws of the State of California. The Defendant Shane A. Swetel is a citizen of the State of Nevada. Selective is a limited liability company formed and existing under the laws of the State of Nevada. The Defendant Walter Ross is a citizen of the State of California. Ross Pacific is a corporation formed and existing under the laws of the State of California, and is allegedly owned and controlled by the Defendant Ross. (Compl. at ¶ 15.)
Emerald's subsidiary company Eternal is a corporation that was formed under the laws of the State of Delaware and maintains its principal office in Michigan. The company is a manufacturer and distributer of branded, licensed funeral products, such as caskets, urns, and vaults. In 2009, Eternal was in need of capital financing in order to expand its business. Specifically, it was looking for financing in the sum of approximately $2 million. Thus, in or about April 2009, Eternal began discussions with Wong and MVP to facilitate a financing arrangement ("the $2 Million Financing"). According to the Complaint, Wong represented that MVP was a sophisticated and experienced financial services and investment banking enterprise, which would be able to accommodate Eternal's financing needs.
After several months of discussions, Wong allegedly explained for the first time to Clint Mytych, President and Chief Executive Officer of Eternal, that Eternal would need to post ten percent of the financing----$200,000.00----as security for the $2 Million Financing because the company was in its early development stages and did not have the asset base required for the deal. Specifically, Eternal was to place the $200,00.00 in an interest bearing escrow account to be maintained by the Defendant Schaffer, as legal counsel for MVP.
Eternal did not have the adequate funds to post the $200,000.00 security deposit. However, one of Eternal's large shareholders-the Plaintiff Emerald-was willing and able to do so. As of November 20, 2009, Emerald owned approximately 145 million shares of Eternal common stock, aggregating approximately ten percent of Eternal's issued and outstanding common stock. Thus, Emerald was a major shareholder of Eternal and would likely derive economic gains obtained from an expansion in Eternal's business.
The Plaintiff's Managing Member, Michael Xirinachs, began to communicate directly with Wong and MVP regarding the security. Wong met with Xirinachs at Emerald's offices in New York in October and November 2009. Wong allegedly represented to Xirinachs and Mytych at that time that if the $200,000.00 security deposit was made, that she and MVP would guarantee at least $1 million in funding, if not the entire $2 million requested. In addition, the Complaint states that Wong represented to Xirinachs that the full balance of the $200,000.00 escrow amount, plus all interest accrued, would be returned to Emerald when the $2 Million Financing was paid off.
On or about November 20, 2009, Wong represented to Mytych and Xirinachs that MVP had completed arrangements to loan the $2 million in financing, as long as the escrow requirement was satisfied. The $200,000.00 was to be deposited in Schaffer's escrow/trust account, because Wong represented that he was acting as the attorney for MVP. Therefore, the Plaintiff, on behalf of Eternal, wired $200,000.00 to the "H. Cy Schaffer Client Trust Account", maintained at Wells Fargo Bank, Beverly Hills, California, via four successive wire transfers in the respective amounts of $75,000.00 on November 24, 2009; $75,000.00 on November 27, 2009; $30,000.00 on November 30, 2009; and $20,000.00 on December 1, 2009.
On December 3, 2009, Wong confirmed to Xirinachs via email that the $2 Million Financing would be available in a few days. Email communications over the next several weeks between Wong and the Plaintiff indicate that Wong was working on the paperwork and continually assured Emerald that the "wires [were] going out." (Compl. at ¶ 55.) However, the $2 Million Financing was never completed.
Thereafter, Emerald made a demand to Wong and Schaffer to return the $200,000.00 escrow deposit, with accrued interest. Both Wong and Schaffer confirmed that the deposit would be repaid. However, in or about mid to late December 2009, Schaffer admitted to Xirinachs that the $200,00.00 had been disbursed by him from his client trust account, not for the purposes agreed upon, but for his personal use and that of others, including Wong.
Wong placed the blame for the missing funds on Schaffer. In addition, Wong allegedly told the Plaintiff that the Defendant Shane A. Swetel transferred some or all of the $200,000.00 escrow deposit for his own purposes. For example, an email was supposedly sent from Wong to Xirinachs on January 7, 2010, advising him that Schaffer and Swetel had transferred the funds to a third party for the purposes of implementing an unspecified bond deal. However, also according to the Complaint, Wong knew or should have known that the $200,000.00 had been disbursed by Schaffer, including a $60,000.00 disbursement to her.
Schaffer allegedly promised to repay the Plaintiff on several occasions over the following six month period, from November 2009 through May 2010. On this basis, Emerald agreed to withhold from instituting legal action against Schaffer and those that acted with him. During this time, Schaffer recruited his close friend and business associate, the Defendant Walter Ross and his company Ross Pacific Trade Corp., as well as the Defendant Swetel, to assist him in making the repayments to Emerald. In this regard, the Plaintiff's attorney had several conversations with Schaffer, Ross, and Swetel, regarding the repayment. According to Emerald, Ross and Swetel were working for the purpose of attempting to induce Emerald to withhold from initiating legal action against Schaffer. However, once it became clear that the money was not going to be returned, the Plaintiff brought the instant action.
On April 15, 2011, the Plaintiff commenced this action, asserting causes of action for fraudulent and negligent misrepresentations; breach of fiduciary duty; promissory estoppel; unjust enrichment; conversion; civil conspiracy to commit conversion; aiding and abetting conversion; and breach of the implied covenant of good faith and fair dealing.
Currently pending before the Court is a motion to dismiss filed by the Defendant Schaffer, seeking to either dismiss the complaint against him for lack of personal jurisdiction or, in the alternative, to transfer venue. In addition, on the basis of this motion, the Plaintiff filed a motion for sanctions against Schaffer pursuant to Rule 11.
A.As to Whether the Case Should be Dismissed Against the Additional Defendants
As an initial matter, the Court must determine whether the named Defendants in this case have been properly served. As of today, only one Defendant has actually appeared in this case---- the Defendant H. Cy Schaffer----after an alternative means of service was granted by United States Magistrate Judge William D. Wall. However, none of the other Defendants have appeared in this action, nor, apparently, has the Plaintiff pursued this case against any of the other Defendants, because no affidavits of service have been filed with this Court.
Therefore, on July 16, 2012, the Court issued an order directing the Plaintiff to show cause as to why the Court should not dismiss this case pursuant to Fed. R. Civ. P. 41(b) against Susan Wong, MVP, Shane A. Swetel, Selective, Walter Ross, and Ross Pacific (the "Additional Defendants") for failure to prosecute. (See Docket Entry No. 27.)
In response, through its attorney, Jeffrey L. Rosenberg, Esq., the Plaintiff submitted a Declaration in which Rosenberg states that "despite good faith and due diligence, [the Plaintiff] has been thwarted in its efforts to effect service on the Additional Defendants, including by their willful avoidance and/or by their prior effort to hide and/or misstate their addresses". (Rosenberg Decl. at 1.) In this Declaration, Rosenberg details his efforts to serve the Additional Defendants, explaining that summonses were issued as to each defendant. After this was ineffective, he consulted with Stephen Mandel of Lan-West, a forensic computing firm, and retained the services of a private investigator named Robert Clymer and his firm Sin City Private Investigators ("SCPI"). However, despite "diligent efforts", neither Mr. Mandel and Lan-West, nor Clymer and SCPI, were able to locate Wong or the Additional Defendants through the internet and other forensic searches. Rosenberg then goes on to explain that he was put in touch with another investigative firm named Bo Dietl & Associates to attempt to locate the Additional Defendants, that mainly focused on locating and serving Defendant Wong.
Eventually, the Plaintiff was able to obtain the address for Wong's parents through Bo Dietl, and the Alvin Engell Agency was given the task of serving her at this location. However, no affidavit of service has ever been filed with this Court. The Plaintiff contends that because of a new computer system, a copy of the affidavit of service cannot be accessed. Nevertheless, Rosenberg claims that he was advised that service was made on Wong and that, at a minimum, strenuous efforts to serve Wong were implemented.
As for MVP, the Plaintiff has now provided an affidavit of service for this company through an exhibit attached to Rosenberg's Declaration. Thus, it appears that MVP has been served in this action but has not answered or appeared.
As for Swetel and Selective, Rosenberg affirms that its investigators have been unable to discern whether they are actually located at the addresses that were revealed through internet searches, and he has left messages on two different phone numbers that have been listed. However, the Plaintiff has been unable to detail any other additional efforts that have been made to locate either this individual or this company.
As for Ross and Ross Pacific, the Plaintiff's initial attempts to serve this individual and his company at the addresses that were uncovered were unsuccessful. Rosenberg states in his Declaration that the investigative firms the Plaintiff hired have made efforts to locate these Defendants through internet searches, and that that "all reasonable efforts were made to locate these Additional Defendants". However, the Plaintiff has been unable to detail any further efforts that were made to locate these defendants.
In sum, there have been no affidavits of service filed for any of the Additional Defendants other than MVP. According to Rosenberg, both MVP and Wong were served, but he can only provide an affidavit of service for MVP. The lack of an affidavit of service for Wong is blamed on a "law office error" or the result of its process server failing to follow the Plaintiff's instructions. As for Swetel, Selective, Ross, and Ross Pacific, the Plaintiff admits that they have not been served within 120 days of the issuance of the summonses, but emphasizes that this is the result only of the conduct and avoidance of these Additional Defendants. The Declaration states that it is the Plaintiff's plan to attempt to locate the other Additional Defendants by deposing Schaffer.
There is no doubt that if a defendant is not served within 120 days after the complaint is filed, a Court is empowered under Fed. R. Civ. P. 4(m) to dismiss an action against that particular defendant without prejudice or order that service be made within a specified time. A Court may do so upon motion or on its own initiative. See Cioce v. Cnty. of Westchester, 128 Fed. App'x 181, 183 (2d Cir. 2005) ("Rule 4(m) provides that the district court shall, upon motion or on its own initiative after notice to the plaintiff, dismiss without prejudice any action in which service of the summons and complaint has not been made upon a defendant within 120 days after the filing of the complaint.") (emphasis added); see also Zapata v. City of New York, 502 F.3d 192, 196--97 (2d Cir. 2007) (holding that district courts have discretion to grant extensions of time to serve process, even in the absence of good cause).
However, if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period. See Simmons v. Abruzzo, 104 F.3d 350, at *1 (2d Cir. 1996) ("After the 120 days, the district court can either dismiss the complaint or extend the time for service upon a showing of good cause for failure to serve."); Smith v. New York City Police Dept., No. Civ. 15436, 2008 WL 4449333, at *2 (S.D.N.Y. Oct. 2, 2008) ("But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period."). "Ordinarily," a plaintiff must "advance some colorable excuse for neglect" to avoid the dismissal of his claims against a particular defendant. Zapata, 502 F.3d at 198; BogleAssegai v. Connecticut, 470 F.3d 498, 509 (2d Cir. 2006); see McKibben v. Credit Lyonnais, No. 98 Civ. 3358, 1999 WL 604883, at *3 (S.D.N.Y. Aug. 10, 1999) ("Good cause or excusable neglect is generally found only in exceptional circumstances where plaintiff's failure to serve process in a timely manner was the result of circumstances beyond his control. . . . [W]here . . . an attorney's ignorance, inadvertence or 'misplaced reliance' promulgated the failure to serve process, courts have shown no leniency.") (citations omitted). When such good cause is not found, the Second Circuit will not disturb a district court's determination under Rule 4(m) "so long as there are sufficient indications on the record that the district court weighed the impact that a dismissal or extension would have on the parties." Zapata, 502 F.3d at 197.
In this case, the Plaintiff has submitted an affidavit of service upon the Defendant MVP, through personal service on Michael Ishida, its authorized agent for service of process. This affidavit of service is dated July 15, 2011, which is within the 120 days required by the Federal Rules. Therefore, the Court finds that this case should not be dismissed against MVP. However, the Plaintiff is directed to move for a default judgment against this party within 60 days of the date of this Order, in order to avoid a dismissal for failure to prosecute pursuant to Fed. R. Civ. P. 41(b).
As for the other Additional Defendants, the Plaintiff has failed to comply with Rule 4(m) as there are no affidavits of service to indicate that these Defendants were served with a summons and complaint within 120 days of the commencement of this action. The Court must then determine whether it should extend the time to serve process; namely, whether there is a showing of good cause by the Plaintiff for failure to serve these defendants.
Certainly, the circumstances of this case do not indicate mere neglect. Cf. Hollomon v. City of New York, No. 04 Civ. 2964, 2006 WL 2135800, at *3 (E.D.N.Y. July 31, 2006) (a "delay in service resulting from the mere inadvertence, neglect, or mistake of a litigant's attorney does not constitute good cause") (quoting Managed ...