Goldsmith v Sotheby's, Inc.

[*1] Goldsmith v Sotheby's, Inc. 2005 NY Slip Op 51702(U) [9 Misc 3d 1120(A)] Decided on September 8, 2005 Supreme Court, New York County Edmead, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 8, 2005
Supreme Court, New York County

Isabel Marcelle Christine Goldsmith, Plaintiff,

against

Sotheby's, Inc., Defendant. SOTHEBY'S, INC. Third-Party Plaintiff, TEMPERA TRADING CORPORATION and EDRIC VAN VREDENBURGH, Third-Party Defendant. TEMPERA TRADING CORPORATION and EDRIC VAN VREDENBURGH, Second Third-Party Plaintiffs, NORTH AMERICAN VAN LINES, INC., SIRVA U.K. LTD., and PITT & SCOTT, LTD. Second Third-Party Defendants.



603504/04

Carol R. Edmead, J.

The jurisdictional issues before the court arise in the context of a case concerning a 17th century Italian baroque marble inlaid tabletop (the "Marble Tabletop"), which was sold at auction by Sotheby's Inc. ("Sotheby's") in New York on November 5, 1998, and is on display at a museum in Madrid. The Marble Tabletop was consigned to Sotheby's by third-party defendants Tempera Trading Corp. and Edric Van Vredenburgh (together "Vredenburgh"), who had purchased it in April 1996 from an employee of a London warehouse, owned by second third-party defendant Pitt & Scott, Ltd ("Pitt & Scott"). Vredenburgh claims he learned of the Marble Tabletop, from a "contact" with the Antiques Roadshow program (fourth party complaint, para. 21). He understood that it had been placed in storage in 1985 and then abandoned by its owner, and that, in 1995, the Pitt & Scott employee was authorized to remove it by the warehouse manager. After acquiring the Marble Tabletop, Vredenburgh spent 35,000 to restore it to pristine condition, leading Sotheby's to appraise it in the range of $1-1.5 million.

In October 2004, plaintiff Isabel Marcelle Christine Goldsmith recommenced this conversion action against Sotheby's, seeking over $2.7 million and claiming that she obtained title to the Marble Tabletop from her grandfather's estate in January 1985, and transferred title to her co-plaintiff Orpheus Financial Co., Inc, a Panamanian corporation.[FN1] Sotheby's commenced a third party action for contractual indemnification against Vredenburgh, who in turn commenced the second third-party action[FN2] against Pitt & Scott "through" its corporate relatives, North American Van Lines, Inc. ("North American"), and Sirva U.K. Ltd. (formerly known as Pickfords, Ltd., and referred to herein as "Sirva/Pickfords"). The second third-party defendants now move to dismiss Vredenburgh's claims on the grounds that (1) the court lacks personal jurisdiction over Sirva/Pickfords and Pitt & Scott, which are organized under the laws of England and Wales, and (2) no viable cause of action is stated against either Sirva/Pickfords or North American (CPLR 3211 [a][7] and [8]).

Third-party plaintiffs acknowledge that Pitt & Scott and Sirva/Pickfords (hereinafter, the "British companies") do not have sufficient direct contact with New York for jurisdiction to be exercised over them under the "doing business" test (CPLR 301). However, they contend that jurisdiction may be asserted over them based on the New York presence of their parent company, defendant North American, on the theory that they are "mere departments" serving as part of North American's "global network" of moving and storage companies, and/or on the theory that [*2]North American acts as agent for the UK companies, performing functions in the United States on their behalf. Alternatively, Vredenburgh requests jurisdictional discovery prior to resolution of the jurisdictional motion.

Jurisdictional Facts

Preliminarily, although there was no relationship between the British companies and North American at the time of the events underlying the main action, the relevant time period for the jurisdictional inquiry under CPLR 301 is the time of service of the second third-party summons and complaint (McKinney's NY Practice, CPLR C301:8, "If the corporation has ceased doing business here at the time of commencement, jurisdiction can be sustained only if plaintiff's claim arose out of the defendant's prior business activity," citing, Lancaster v. Colonial Motor Freight Line, Inc., 177 AD2d 152, 156 [1st Dept. 1992]; see Gaboury v. Central Vermont Ry. Co., 250 NY 233, 236 [1929], Cardozo, C.J., "[s]ubmission to the jurisdiction is dependent upon presence within the state ... The service of [the] summons must answer to that test"; Andros Compania Maritima S.A. v. Intertanker Ltd., 714 F. Supp. 669, 675 [S.D.N.Y.1989]).

In support of their motion to dismiss, movants submit the affidavit of Susan Hobson Kus, senior counsel at SIRVA, Inc., who states that she oversees the corporate structure of SIRVA, Inc., and its subsidiaries. In sum, she avers that SIRVA, Inc. is the ultimate parent company of corporate subsidiaries, including all of the moving parties. North American is a Delaware corporation which, through another company, wholly owns Sirva/Pickfords which, in turn, wholly owns Pitt & Scott (Kus affidavit, paras. 3-5). She states that Sirva/Pickfords and Pitt & Scott are both organized under the laws of England and Wales and that neither one conducts or solicits any business in New York, maintains any office or bank account, or employs any individuals in New York. As to Pitt & Scott, she states it is financially independent of North American, receives no financial support from North American, "has complete autonomy" over hiring and assigning employees, and creates and implements its own marketing and operational policies (paras. 8-9, 12). Ms. Kus further avers that corporate formalities are observed between Pitt & Scott and North American, that the companies have separate officers, boards of directors, books, and offices, and that they conduct transactions between themselves on an arms-length basis (id., para. 10); the identical allegations are set forth concerning the relationship between Sirva/Pickfords and North American (id., para. 11).

Second third-party plaintiff Vredenburgh alleges that jurisdiction is proper over Pitt & Scott and Sirva/Pickfords by virtue of the activities of their parent, North American, which maintains agents in New York who engage in activities on its behalf and for its benefit (exhibit A, para. 10). Relying on North American's public filings, Vredenburgh alleges that the British subsidiaries have an agency relationship with North American and/or are mere departments, branches or brands of North American. For instance, a June 18, 2002 filing states that North American derives revenues from "[o]ur moving and storage services segment [which] operates in the United Kingdom . . . through a network of company-owned branches that utilize the Pickfords or Allied Pickfords brand names among others" (exhibit A, para. 14; Goodman opposition aff., paras. 15-18 and exhibit I). The filing states that North American's relocation services are marketed to multi-national companies "most often based in the United States," and use "authorized representatives around the world to complete the service offering." It further states that North American had "initiated programs in its United Kingdom operations in an effort [*3]to restructure the branch system and to eliminate management redundancy within its Pickfords Vanguard unit" (exhibit I, p. 11). Similar statements concerning the "network of company owned branches" and worldwide "team of employees" appear in a November 14, 2003 Form 10-Q filing (exhibit A, para. 15; Goodman opposition aff., paras. 19-20 and exhibit F). That form also reports operating revenues, income and total assets from European and Asian relocation services, and lists as a liability "$2.6 million of foreign subsidiaries' operating lines of credit" (opp., exhibit F, pp. 12, 39).

Vredenburgh also submits a September 15, 1999 press release announcing the merger of Pickfords, Allied Pickfords and Allied Van Lines with North American, to "create a more effective global competitor," with headquarters in Indiana and executive offices in Illinois, England, and Australia (Goodman Aff., exhibit D). The merger would "strengthen North American's specialized transportation of high value products by permitting seamless service spanning the globe," and allow for consolidation of corporate training to eliminate duplication of expenses (id.). The Sirva/Pickfords website states "Pickfords are part of the SIRVA group of companies" (exhibit J).

In reply, Ms. Kus avers that each affiliated company of North American is "equipped to provide relocation services in its own geographical area." As for Pitt & Scott, she states that it operates independently in the United Kingdom, only has capacity to operate there, and does not do business in New York through North American. She further states that Pitt & Scott "is a dormant entity for tax purposes" and "has minimal assets and reserves and is only able to draw up dormant accounts" (reply aff., paras. 3-4, 6). She denies that North American makes no-interest loans or provides an operating line of credit for either Sirva/Pickfords or Pitt & Scott.

Legal Discussion

A plaintiff is not required to plead jurisdictional facts in the complaint, but in order to withstand a motion to dismiss for lack of jurisdiction, the plaintiff must demonstrate a prima facie basis for the exercise of in personam jurisdiction (Fantis Foods, Inc. v. Standard Importing Co., 49 NY2d 317, 325 [1980], plaintiff has burden of showing that facts "may exist" to support jurisdiction under long-arm statute). Since the plaintiff ordinarily will not have access to facts necessary to make such a showing, the court may allow discovery if the plaintiff has made a "sufficient start" indicating that the basis of jurisdiction is "not frivolous" (Peterson v. Spartan Industries, Inc., 33 NY2d 463, 467 [1974]), and may take evidence on the issue, keeping in mind that the evidence must be viewed in the light most favorable to the plaintiff (Reyes v. Sanchez-Pena, 191 Misc 2d 600 [Sup. Ct. Bronx Co. 2002]). If the plaintiff fails to offer "some tangible evidence which would constitute a 'sufficient start' in showing that jurisdiction could exist," the court may properly exercise its discretion to deny jurisdictional discovery (Mandel v. Busch Entertainment Corp., 215 AD2d 455 [2d Dept. 1995]; see SNS Bank, N.V. v. Citibank, N.A., 7 AD3d 352 [1st Dept. 2004]).

As a general rule, the presence of a local corporation does not create jurisdiction over a related, but independently managed, foreign corporation (Delagi v. Volkswagenwerk AG, 29 NY2d 426 [1972]). However, it is well-established that the relationship between a foreign corporation and an affiliated domestic corporation may provide a basis for exercise of jurisdiction over the foreign corporation under two theories: (1) if the domestic corporation acts as an "agent" on behalf of the foreign corporation (Frummer v. Hilton Hotels Int'l. Inc., 19 NY2d [*4]533, 537, cert.denied, 389 U.S. 923 [1967]), or (2) if the two companies are so closely related that one is a "mere department" of the other, so that they may be treated as one for jurisdictional purposes (Taca International Airlines, SA v. Rolls-Royce of England, Ltd., 15 NY2d 97 [1965]). In all cases, the exercise of jurisdiction must also be consistent with the constitutional due process requirements of "fair play and substantial justice" (International Shoe v. Washington, 326 U.S. 310, 316 [1945])

In Frummer, the Court of Appeals held that the reservation services performed in New York by a subsidiary on behalf of, or as "agent" of, the foreign parent hotel corporation provided a basis for jurisdiction, defining the key issue as whether the domestic subsidiary "does all the business which [the hotel] could do were it here by its own officials" (19 NY2d at 537; compare Bryant v. Finnish Nat. Airline, 15 NY2d 426, 431 [1965], "solicitation of prospective customers and the reception and transmission of hotel reservations did not constitute doing business"). In Taca, the Court of Appeals held that the British defendant, Rolls-Royce of England, Ltd., could be served through its American subsidiary, because the subsidiary was, in effect, a "mere department" through which the British corporation did business in the state (15 NY2d at 102). The factors considered in determining whether one corporation is a "mere department" of another, as formulated in the leading case, Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117 (2d Dept. 1984), are: (1) common ownership; (2) financial dependency of the subsidiary on the parent; (3) the "degree to which the parent interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities"; and (4) the degree of the parent's control of the subsidiary's marketing and operational policies. In sum, jurisdiction over the foreign corporation will be found only when "the activities of the parent show a disregard for the separate corporate existence of the subsidiary" (id. at 120).

Though movants do not press the point, it is notable that the jurisdictional inquiry generally involves a foreign parent corporation which is held to be present in New York through the presence and business activities of a subsidiary, which either acts as its agent, as in Frummer, or is a mere department, as in Taca. This case presents the reverse veil-piercing scenario: the plaintiff argues that Pitt & Scott and Sirva/Pickfords may be sued in the United States because their parent corporation, North American, is a Delaware parent corporation that does business in New York.

New York courts have recognized a reverse piercing basis for jurisdiction over a foreign subsidiary when the subsidiary and parent are "one and the same" company, essentially applying the "mere department" analysis set forth in Taca (Public Administrator v. Royal Bank, 19 NY2d 127, 132 [1967], jurisdiction exercised over separately-incorporated French branch of the Royal Bank of Canada; see also ESI, Inc. v. Coastal Corp., 61 F. Supp. 2d 35 [S.D.NY 1999], where numerous corporate entities were an "integral part of a united endeavor," jurisdiction could be exercised over foreign affiliates or subsidiaries). The parties do not refer to any New York case that has applied the agency test in a reverse-piercing situation, but several lower federal courts have held that the agency theory may provide a basis for assertion of jurisdiction over a foreign subsidiary where its United States parent company provides services for the business of the foreign subsidiary, regardless of whether the foreign corporation controls the United States parent (see Palmieri v. Estefan, 793 F. Supp. 1182, 1192-93 [S.D.N.Y.1992], finding that although affiliated corporations of New York-based record company were independently managed and not [*5]"mere departments," jurisdiction over the foreign subsidiaries was proper, based on activities performed on their behalf by the parent company and the close interrelationship of their activities; Jayne v. Royal Jordanian Airlines Corp., 502 F. Supp. 848 [S.D.NY 1980], finding jurisdiction over foreign air charterer where parent provided services, such as soliciting and arranging charters in New York).

In this case, Vredenburgh asserts that the evidence "conclusively" establishes jurisdiction under both tests. However, at this pre-discovery stage, it relies primarily on language in publicly-filed documents, which state that the parent corporation, North American, does business in the United Kingdom "through a network of company-owned branches." Vredenburgh asserts that the "agency" theory applies because North American does business in the United States that the British companies would otherwise have to do for themselves. However, there is little or no factual support for such assertion. At the time of the underlying events involving the storage and sale of the Marble Tabletop, the British companies were not related to North American and it appears they operated within the United Kingdom. By the time of the commencement of the second third-party action, North American had acquired the British companies to form a worldwide moving and storage operation, but it is unclear how North American may be viewed as an agent of the British companies acting on their behalf or for their benefit in New York.

As for the "mere department" theory, it is undisputed that the first and essential factor of the four-part test is met because the British companies are subsidiaries of North American, and all three share common ownership. Further, the language of North American's public filings provides support for Vredenburgh's position by describing the subsidiaries as "branches" and highlighting the integrated functioning of the subsidiaries under the common ownership of Sirva, Inc. However, there is little factual basis for determining whether the remaining three factors financial dependency of the subsidiary on the parent; the degree of parental intrusion into executive personnel issues and observation of corporate formalities, and the degree of the parent's control of the subsidiary's marketing and operational policies support an assertion of jurisdiction on the theory that the corporate subsidiaries are mere departments or branches of North American. On the other hand, movants provide little basis for finding that the British companies are wholly independent subsidiaries, submitting only an affidavit of counsel reciting conclusory facts in purely boilerplate terms, with no specific facts concerning the British companies' business and with no documentary support. In reply, movants' counsel avers for the first time that Pitt & Scott has a "defunct tax status," an assertion that appears at odds with allegations in the initial affidavit that suggested the company is currently active, i.e., that it is "completely financially independent," "has complete autonomy as to whom it hires and selects to be employee," and "creates and implements their own marketing and operational policies."

Accordingly, in the exercise of discretion, the court concludes that Vredenburgh has not demonstrated a prima facie basis for exercising jurisdiction over either or both of the British subsidiaries, but has made a sufficient start to warrant limited jurisdictional discovery concerning the relationship between the British companies and North American at the time the second third-party action was commenced and for a period of one year prior thereto.

As for the branch of the motion seeking dismissal as to North American and Sirva/Pickfords for failure to state a cause of action, Vredenburgh concedes that the only basis for holding North American liable is an alter ego theory of piercing the corporate veil to hold the [*6]parent liable (Memo of Law, p. 25). In order to pierce the corporate veil, plaintiffs must show that the corporate entity was completely dominated and controlled by the parent in relation to the transaction in issue (TNS Holdings, Inc. v. MKI Securities Corp., 92 NY2d 335, 338 [1998]), or that it is "a fragment of a larger corporate combine which actually conducts the business" (Walkovszky v. Carlton, 18 NY2d 414, 418 [1966]; Island Seafood Co., Inc. v. Golub Corp., 303 AD2d 892 [3d Dept. 2003]). In either situation, the corporate veil will not be pierced except upon a showing of some abuse of the corporate form leading to "inequity, fraud or malfeasance" (TNS Holdings, Inc. v. MKI Securities Corp., supra; Morris v. New York State Dep't of Taxation and Finance, 82 NY2d 135, 141 [1993]; Walkovszky v. Carlton, supra). In this case, there can be no showing that North American dominated Pitt & Scott or Sirva/Pickfords at the time of the underlying transactions in issue since they were not yet merged, and, even if the subsidiaries are found to be "mere departments" of North American for jurisdictional purposes, there is no allegation that North American abused the corporate form in any way that resulted in inequity, fraud or malfeasance with respect to Vredenburgh. Accordingly, the motion to dismiss is granted as to third-party defendant North American, with leave to replead in the event that discovery reveals facts that would provide a good faith basis for asserting a veil-piercing claim, and such claims are severed and dismissed.

As for Sirva/Pickfords, Vredenburgh asserts that it is properly named since it, or its predecessor, wholly-owned Pitt & Scott at the time of the underlying events and may be held responsible for the alleged misrepresentations of good title and for the warehouse's facilitation of the sale of the Marble Tabletop. Absent any response to this argument in movants' reply affirmation, this branch of the motion is denied.

This decision constitutes the interim order of the court.

Dated: September , 2005

_____________________________

J.S.C. Footnotes

Footnote 1:Vredenburgh does not concede that the Marble Tabletop is the same tabletop which plaintiff Goldsmith describes in the complaint as a "17th Century Florentine Pietra Dura table" (Fourth Party Complaint, para. 16). Goldsmith alleges she sought to remove her tabletop from storage in July 1999, and then learned that Pitt & Scott could not locate it; she alleges she has examined the tabletop on display in Madrid and identified it as hers. She has demanded return from the Spanish government, which has refused her demand (complaint, paras. 7-16), and commenced an action against Sotheby's in October 2001, which was voluntarily dismissed without prejudice and pursuant to a stipulation tolling any state of limitations (complaint, paras. 18-19).

Footnote 2:The action is denominated a "fourth party action."