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Wausau Underwriters Insurance Co. v. Osborne Transformer Corporation

United States District Court, Second Circuit

November 15, 2013



JEREMIAH J. McCARTHY, Magistrate Judge.

This case has been referred to me by Hon. Richard J. Arcara for supervision of pretrial proceedings [14].[1] Before me are the motions of defendants The Osborne Transformer Corporation ("Osborne") [28] and Check Corporation ("Check") [38] to dismiss the Complaint for lack of personal jurisdiction pursuant to Fed.R.Civ.P. ("Rule") 12(b)(2). Osborne also moves to dismiss Check's cross-claim for lack of personal jurisdiction. Amended Notice of Motion [29]. Oral argument was held on February 27, 2013 [43].

On September 17, 2013, I issued a Report and Recommendation [44], recommending "that Check's motion be denied, without prejudice to renewal upon further factual developments through discovery" (id., p. 9) and that "Osborne's motion to dismiss for lack of personal jurisdiction be denied, without prejudice to refiling after the completion of abbreviated and limited jurisdictional discovery." Id., p. 16.

Shortly before the deadline for filing objections to my Report and Recommendation, defendants contacted my chambers seeking clarification as to whether the abbreviated jurisdictional discovery would include both defendants. Following a conference with the parties on October 3, 2013, I tolled the deadline for filing objections and permitted the parties to submit letter briefs addressing whether "segmented jurisdictional and merits discovery is warranted as to one or both defendants". October 3, 2013 Text Order [46]. Having considered these submissions [47-49], my Report and Recommendation [44] is rescinded[2] and I recommend, for the following reasons, that both motions to dismiss be denied, without prejudice to renewal as full discovery proceeds.


This case arises from a November 23, 2008 fire at a Pizza Hut restaurant owned by plaintiff Hospitality West, LLC ("Hospitality West") located at 610 North Union Street in Olean, New York. Complaint [1], ¶¶ 14-16. It is alleged that the fire and resulting damage was caused by a power distribution unit ("PDU") manufactured by Osborne and sold and/or distributed to Hospitality West by Check. Id., ¶ 17.

Pursuant to the terms of its policy, plaintiff Wausau Underwriters Insurance Company ("Wausau") paid Hopitality West $702, 759.04 for the damage sustained. Id., ¶¶ 21-22. Wausau, as Hospitality West's subrogee, commenced this action against Osborne and Check asserting various negligence and products liability claims.


"In resolving questions of personal jurisdiction in a diversity action, a district court must conduct a two-part inquiry. First, it must determine whether the plaintiff has shown that the defendant is amenable to service of process under the forum state's laws; and second, it must assess whether the court's assertion of jurisdiction under these laws comports with the requirements of due process". Metropolitan Life Ins. Co. v. Robertson-Ceco Corp. , 84 F.3d 560, 567 (2d Cir. 1996), cert. denied, 519 U.S. 1006 (1996).

"Plaintiff bears the burden of establishing personal jurisdiction, but that burden is fairly light this early in the case." Steuben Foods, Inc. v. Shibuya Hoppmann Corp., 2011 WL 3608064, *4 (W.D.N.Y. 2011) (Arcara, J.) "A plaintiff facing a [Rule] 12(b)(2) motion to dismiss made before any discovery need only allege facts constituting a prima facie showing of personal jurisdiction." PDK Labs, Inc. v. Friedlander , 103 F.3d 1105, 1108-109 (2d Cir. 1997). The court must "construe the pleadings and affidavits in plaintiff's favor at this early stage." Id.[3]

"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." Marine Midland Bank, N.A. v. Miller , 664 F.2d 899, 904 (2d Cir. 1981). "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." Id.

A. Check's Motion to Dismiss the Complaint

In support of its motion, Check relies on the Amended Declaration of its Controller, Kevin Buck [40-2], [4] who states that Check, which is located in Troy, Michigan, does not regularly conduct business in New York and has never had any employees actively soliciting business in New York. Id., ¶¶ 3, 5, 11. Of its $25, 185, 040 in gross revenues from 2007 to 2011, $417, 225 (or approximately 1.7%) was gained from the sales of products shipped into New York. Id., ¶ 27.

Buck concedes that Check did sell Hospitality West heated pizza delivery bags, some of which were sold "as a package with PDUs which were manufactured by Osborne." Id., ¶ 20. However, he states that all sales with Hospitality West were negotiated and executed in Michigan, that Check did not collect New York State sales tax on any of its sales to Hospitality West, that Hospitality West was responsible for the shipping of all of the products it purchased from Check, and that the shipping, which was handled "f.ob. Troy Michigan via common carrier", was paid for by Hospitality West separately from the purchase price of the goods. Id., ¶¶ 21-24. Check denies that the PDU which allegedly caused the fire "was sold, distributed or otherwise introduced into the stream of commerce by Check." Id., ¶ 26.

In opposition to Check's motion, Wausau relies primarily on the Declaration of Walter Ruta, Hospitality West's Director of Operations [39-8]. Ruta states that Hospitality West owns and operates approximately 24 Pizza Hut franchises, all of which are located in New York. Id., ¶ 4. According to Ruta, in or around January 2004, Hospitality West began to utilize "Hotbags" supplied by Check in connection with its operation of Pizza Hut restaurants, and continued to do so until approximately November 22, 2010. Id., ¶¶ 7, 8. During this time frame, 23 purchases of Hotbags from Check were made by Hospitality West's Pizza Hut restaurants. Id., ¶ 9. These orders were placed by the individual Pizza Huts directly with Check and "Check would deliver the Hotbags directly to the Pizza Hut location", while the invoices were sent to and processed by Hospitality West's administrative offices in Traverse City, Michigan. Id., ¶ 10. Ruta's Declaration attaches copies of the referenced invoices [39-9].

1. New York's Long-Arm Statute

New York's long-arm statute permits the exercise of personal jurisdiction over a non-resident defendant under general jurisdiction pursuant to New York Civil Practice Rule ("CPLR") 301, or under specific jurisdiction pursuant to CPLR 302. Wausau opposes Check's motion, arguing that it has made a prima facie showing of personal jurisdiction under CPLR 302(a)(1) and 302(a)(3)(ii). Wausau's Memorandum of Law [39-10], Points II and III.

CPLR 302(a)(3)(ii) provides for the exercise of long-arm jurisdiction over a non-domiciliary, who

"in person or through an agent"... commits a tortious act without the state causing injury to person or property within the state... if he... expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce".

"In order to establish jurisdiction under [CPLR 302(a)(3)(ii)], a plaintiff is... required to demonstrate that (1) the defendant's tortious act was committed outside New York, (2) the cause of action arose from that act, (3) the tortious act caused an injury to a person or property in New York, (4) the defendant expected or should reasonably have expected that his or her action would have consequences in New York, and (5) the defendant derives substantial revenue from interstate or international commerce." Penguin Group (USA) Inc. v. American Buddha , 609 F.3d 30, 35 (2d Cir. 2010) ( citing LaMarca v. Pak-Mor Manufacturing Co. , 95 N.Y.2d 210, 214 (2000)).

Check concedes that, for purposes of this motion, the only element in dispute is whether it expected or should reasonably have expected that its acts would have consequences in the state. Check's Memorandum of Law [38-6], p. 15.[5] "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) ( quoting Allen v. Auto Specialties Manufacturing Co. , 45 A.D.2d 331 (3d Dep't 1974)). "[F]oreseeability must be coupled with evidence of a purposeful New York affiliation, for ...

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