Kryman v Jalas

[*1] Kryman v Jalas 2012 NY Slip Op 50734(U) Decided on April 30, 2012 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 30, 2012
Supreme Court, Kings County

Jacob Kryman, J.C. CARTER, INC., and KCH CORPORATION, Plaintiffs,

against

Sam Jalas a/k/a SHIMSHON JALAS, SIMON RUBINFELD a/k/a SIMCHA RUBINFELD, FANTASTIC INDUSTRIES, INC., EVERWIN ENTERPRISES LTD., and LEUNG WING CHEONG a/k/a "NELSON" a/k/a "IVAN", Defendants.



23578/11



Attorney for Plaintiff:

Reuven J. Epstein, Esq.

271 Route 59

Spring Valley, NY 10977

Attorney for Defendant:

Israel Goldberg, Esq.

Goldberg & Rimberg PLLC

115 Broadway, 3rd Floor

New York, NY 10006

Carolyn E. Demarest, J.

In this action, for monetary damages, injunctive relief, return of business assets, and lost income, plaintiffs Jacob Kryman, J.C. Carter, Inc. ("J.C. Carter"), and KCH Corporation ("KCH") move for a preliminary injunction barring defendants Sam Jalas, Simon Rubinfeld, Fantastic Industries, Inc. ("Fantastic"), Everwin Enterprises Ltd. ("Everwin"), and Leung Wing Cheong from using or sharing plaintiffs' propriety information or trade secrets and barring Jalas, Rubinfeld, and Fantastic from employing or contacting Leung or Everwin. Defendants Leung [*2]and Everwin cross-move, pursuant to CPLR 3211 (a) (8), to dismiss plaintiffs' complaint as against them for lack of personal jurisdiction.

BACKGROUND

The instant action arose from a dispute between Kryman, Jalas's nephew and the sole owner of J.C. Carter and KCH, and Jalas and Rubinfeld, two of the principals of Fantastic.[FN1] Kryman alleges that, since 2003, his two corporations have been developing "exclusive and proprietary products," many of which are trademarked, in Hong Kong and China for sale in the United States. Because plaintiffs had no physical presence in Asia, they allege that Kryman hired Leung, a principal of Everwin,[FN2] as their "key employee" to operate their branch office in Hong Kong. Leung, who is a Chinese national and resident of Hong Kong and has never been to New York, served plaintiffs by locating and securing factories and suppliers for the production of plaintiffs' products in Hong Kong and mainland China. To support their contention that Leung was their employee, plaintiffs allege that they paid him, through Everwin, salary, commission, office rent, expenses, and fees for corporate registration. Plaintiffs provide billing statements demonstrating that J.C. Carter was paying Everwin commission, rent, expenses, and registration fees, but they provide no documentation to support the assertion that Leung or Everwin was receiving a salary. Plaintiffs also provide an email from Kryman to Leung, stating that, in Kryman's view, Everwin is his Hong Kong office, and another email from Leung to Kryman, stating that Leung only did business with Kryman. These statements are ambiguous at best and do not demonstrate a mutual understanding that Leung was plaintiffs' employee or that Everwin was plaintiffs' branch office.

Plaintiffs claim that, from 2005 until 2011, they sold many of their products solely to Fantastic but had no exclusive dealing arrangement. On May 23, 2011, Jalas, Rubinfeld, and a rabbinical advisor allegedly met with Kryman to discuss concerns about plaintiffs selling their products to Fantastic's competitors and requested all of their trademarks and contacts in China and Hong Kong. Plaintiffs assert that when Kryman would not supply this information, after "[d]iscussions continu[ing] though approximately the end of July," Jalas and Rubinfeld approached Leung and offered him a financial incentive to divulge plaintiffs' "proprietary information and trade secrets" and to contact the factories and suppliers in Hong Kong and China to ask that they no longer do business with plaintiffs. Following this encounter, plaintiffs allege, many of their contacts in China refused to do business with them and Leung told Kryman that he "took a position with large company in Hong Kong" and thus could no longer work for him. Plaintiffs claim that Fantastic has already made orders using their proprietary information and trade secrets and has infringed upon some of their trademarks. [*3]

Defendants assert that the contacts in Hong Kong and China that plaintiffs allege they stole are actually Fantastic's own contacts, including that of Leung,[FN3] that Kryman obtained as an employee of his uncle's company.[FN4] Because they retain independent overseas factories to produce all of their products, defendants allege that they place orders in the names of several different corporate entities to prevent their competitors from discovering all of their manufacturing contacts and order histories. Defendants contend that Fantastic allowed Kryman to use J.C. Carter and KCH to place such orders and that it is for this reason that plaintiffs sold their products exclusively to Fantastic.[FN5] Moreover, defendants contend that they did not infringe upon plaintiffs' trademarks but that plaintiffs usurped the trademarks, on products that Fantastic has been producing since 1981, after the trademarks expired and before Fantastic had a chance to renew them.

On October 18, 2011, plaintiffs brought this action, seeking outstanding payments for goods delivered to Fantastic by each of the two corporate plaintiffs, totaling over $300,000; injunctive relief to remedy defendants' theft of trade secrets and unfair competition; return of unspecified business assets, including plaintiffs' "materials and deposit to place orders"; and lost income resulting from defendants' purportedly illegal actions. On October 19, 2011, plaintiffs moved, by order to show cause, for a preliminary injunction barring defendants from using or sharing plaintiffs' proprietary information that Leung allegedly divulged to Jalas and Rubinfeld and barring Fantastic, Jalas, and Rubinfeld from employing or contacting Leung or Everwin. At the first appearance before this Court, plaintiffs requested and were denied a temporary restraining order based upon a finding that plaintiffs had not sufficiently demonstrated a likelihood that they would prevail on the merits. Because a preliminary injunction similarly requires that plaintiffs demonstrate a probability of success on the merits (see Nobu Next Door, LLC v Fine Arts Housing, Inc., 4 NY3d 839, 840 [2005]), plaintiffs' motion for a preliminary injunction must also be denied pending a hearing on the merits. Where conflicting facts require further discovery and trial, a preliminary injunction should be denied (see Peterson v Corbin, 275 AD2d 35, 37 [2d Dept 2000]).

Leung and Everwin cross-move, pursuant to CPLR 3211 (a) (8), to dismiss plaintiff's complaint as against them for lack of personal jurisdiction. Leung alleges that he was not plaintiffs' employee but simply an intermediary who took product specifications from customers and located factories in Hong Kong and mainland China that were willing to produce those products. Leung asserts that Everwin had other customers; that plaintiffs never filed a tax return for him as an employee; and that he would occasionally require the use of an office, for which he asked his [*4]customers to pay, so that he could impress his contacts. Leung further alleges that he has never been to New York, never engaged in or solicited business in New York, and met with all of his clients in China. Everwin is a Hong Kong corporation, and Leung asserts that it has no office in New York or any substantial connection to the state. Accordingly, Leung and Everwin contend that they are not subject to the long arm jurisdiction of the Supreme Court and that defending a lawsuit in New York would cause significant hardship and prejudice.

Plaintiffs maintain that this Court has jurisdiction over Leung and Everwin, both for "doing business" in New York and under the long-arm statute, because they shipped millions of dollars worth of goods to J.C. Carter and KCH in New York, which purportedly "represented 100%, or very close to a 100% [sic] of the items shipped by Everwin"[FN6]; they committed a tortious act in New York that caused injury in the state; and they engaged in a conspiracy with Jalas, Rubinfeld, and Fantastic to steal plaintiffs' proprietary information.

DISCUSSION

"While the ultimate burden of proof rests with the party asserting jurisdiction, the plaintiffs, in opposition to a motion to dismiss pursuant to CPLR 3211(a)(8), need only make a prima facie showing that the defendant was subject to the jurisdiction of the Supreme Court" (Alden Personnel, Inc. v David, 38 AD3d 697, 698 [2d Dept 2007] [internal citations omitted]; see Marist College v Brady, 84 AD3d 1322, 1323 [2d Dept 2011]). Moreover, discovery may be necessary to determine personal jurisdiction if the plaintiffs do not make such prima facie showing but demonstrate "a sufficient start, and show[] their position not to be frivolous" (Peterson v Spartan Indus., Inc., 33 NY2d 463, 467 [1974]; see Marist College, 84 AD3d at 1323).

Plaintiffs assert that the Supreme Court has general jurisdiction over Leung and Everwin because of their ongoing business dealings in New York. Under CPLR 301, a foreign corporation is subject to the jurisdiction of New York courts "if it has engaged in such a continuous and systematic course of doing business' here that a finding of its presence' in this jurisdiction is warranted" (Landoil Resources Corp. v Alexander & Alexander Servs., Inc., 77 NY2d 28, 33 [1990], quoting Laufer v Ostrow, 55 NY2d 305, 309—310 [1982]). Such jurisdiction may be obtained only if the corporation does business within the state "not occasionally or casually, but with a fair measure of permanence and continuity"(Laufer, 55 NY2d at 310, quoting Tauza v Susquehanna Coal Co., 220 NY 259, 267 [1917]). The Court of Appeals has made clear that "[s]olicitation of business alone will not justify a finding of corporate presence in New York" but that "when there are activities of substance in addition to solicitation there is presence and, therefore, jurisdiction" (id.). In determining whether a corporation is doing business in New York, courts apply a simple pragmatic test that considers "the existence of an office in New York; the solicitation of business in the state; the presence of bank accounts and other property in the state; and the presence of employees of the foreign defendant in the state" (Hoffritz for Cutlery, Inc. v Amajac, Ltd., 763 F2d 55, 58 [2d Cir 1985]). The Supreme Court may also have jurisdiction over an individual on similar grounds so long as such individual "is doing business in New York as an individual rather than on [*5]behalf of a corporation" (Brinkmann v Adrian Carriers, Inc., 29 AD3d 615, 617 [2d Dept 2006]).

In the instant case, plaintiffs cannot establish jurisdiction over Everwin under CPLR 301. While plaintiffs allege that Leung is their employee and Everwin is the Hong Kong office of J.C. Carter and KCH, they did not state that Everwin itself has any physical presence in New York, as demonstrated by an office, employees, property, or bank accounts. Rather, defendants conversely state that Everwin has its own presence overseas and that all of Leung and Everwin's actions physically took place in Hong Kong and China. Even if, as plaintiffs claim, Everwin solicited millions of dollars worth of orders from plaintiffs and shipped goods to New York, Everwin would still not have a sufficient connection to the state to warrant a finding that it was "doing business" in New York (see S & T Bank v Spectrum Cabinet Sales, 247 AD2d 373, 374 [2d Dept 1998] [concerning unlicensed foreign corporations' right to sue in New York courts pursuant to Business Corporation Law § 1312]). Moreover, because it is undisputed that Leung has never been to New York, all his business dealings were conducted in China, and he was doing business on behalf of Everwin, his corporate entity, plaintiffs have not established jurisdiction over Leung pursuant to CPLR 301 either.

Plaintiffs also claim that the Court may exercise long arm jurisdiction over Leung and Everwin pursuant to CPLR 302. Under CPLR 302 (a) (2), "a court may exercise personal jurisdiction over any non-domiciliary" that "commits a tortious act within the state." Here, plaintiffs claim jurisdiction on the basis of trademark infringement, for which "the wrong takes place not where the deceptive labels are affixed to the goods or where the good are wrapped in the misleading packages, but where the passing off occurs" (Pilates, Inc. v Pilates Inst., Inc., 891 F Supp 175, 180 [SDNY 1995], quoting Vanity Fair Mills, Inc. v T. Eaton Co., 234 F2d 633, 639 [2d Cir 1956]).[FN7] Plaintiffs allege that Leung and Everwin shared their trademarked specifications and shipped goods to New York, which may have included goods that purportedly infringed upon plaintiffs' trademarks. Although defendants argue that Leung, through Everwin, did not participate in the manufacture, packaging, or shipping of any products and thus is not liable for trademark infringement, plaintiffs have demonstrated that facts may surface, after further discovery, through which they can establish personal jurisdiction over Leung and Everwin.

Plaintiffs also argue that there is personal jurisdiction over Leung and Everwin pursuant to CPLR 302 (a) (3), which provides that there is jurisdiction where a defendant "commits a tortious act without the state causing injury to person or property within the state," provided that he "regularly does or solicits business, or engages in [a] persistent course of conduct, or derives substantial revenue from goods . . . or services rendered, in the state" or "expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce." Plaintiffs have made a showing that there could be personal jurisdiction over Leung and Everwin under this provision in that plaintiffs claim that Leung and Everwin divulged plaintiffs' trade secrets and other proprietary information, which Fantastic used to order products and infringe upon their trademarks, thereby causing injury in New York, where the [*6]purportedly infringing goods were delivered and where Fantastic allegedly competes with plaintiffs. Plaintiffs further contend that Leung and Everwin "derive close to 100% of their income from the millions of dollars they ship into New York" from China. Assuming the truth of these allegations, and assuming that Leung arranged for the shipment of such goods to New York, it would be reasonable for Leung and Everwin to expect that their purportedly tortious conduct would cause harm in New York. While defendants argue that Leung and Everwin did not ship any goods and only participated in commerce in China and Hong Kong, they have not provided evidence that conclusively counters plaintiffs' claims. Therefore, discovery is necessary to determine whether the Court has personal jurisdiction over Leung and Everwin pursuant to CPLR 302 (a) (3).

Finally, plaintiffs contend that there is jurisdiction over Leung and Everwin by virtue of their participation in a civil conspiracy to steal trade secrets from plaintiffs. New York courts have recognized jurisdiction under CPLR 302 (a) (2) based upon the tortious actions of co-conspirators as agents for the non-domiciliary defendants (see Small v Lorillard Tobacco Co., 252 AD2d 1, 17 [1st Dept 1998]; Reeves v Phillips, 54 AD2d 854, 855 [1st Dept 1976]). For such jurisdiction, plaintiffs would need, not only to make a prima facie case of civil conspiracy, but also to demonstrate that "(a) the defendant had an awareness of the effects in New York of its activity; (b) the activity of the co-conspirators in New York was to the benefit of the out-of-state conspirators; and (c) the co-conspirators acting in New York acted at the direction or under the control,' or at the request of or on behalf of' the out-of-state defendant." (Chrysler Capital Corp. v Century Power Corp., 778 F Supp 1260, 1268—69 [SDNY 1991], quoting Dixon v Mack, 507 F Supp 345, 350 [SDNY 1980]). In the instant case, plaintiffs make no allegation that Jalas, Rubinfeld, or Fantastic acted at the request or under the control of Leung or Everwin. To the contrary, plaintiffs claim that Jalas and Rubinfeld convinced Leung and Everwin to divulge plaintiffs' trade secrets and to work for Fantastic instead of plaintiffs. Therefore, plaintiffs' argument that the Court has jurisdiction over Leung and Everwin because they participated in a conspiracy with the New York defendants is without merit.

CONCLUSION

Accordingly, Leung and Everwin's cross-motion to dismiss the complaint as against them is denied without prejudice to renewal following discovery on the issue of personal jurisdiction. Plaintiffs' motion for a preliminary injunction is also denied, without prejudice. A hearing regarding the merits of the competing allegations of the parties will be held before a Special Referee. The parties shall contact the Court to determine the date of such hearing.

The foregoing constitutes the decision and order of the Court.

E N T E R :

HON. CAROLYN E. DEMAREST, J.S.C. Footnotes

Footnote 1: Jalas, who is the CEO of Fantastic, claims that he and the other principals also own several related corporations, which are not named as parties to this action.

Footnote 2: Although defendants contend that Leung alone operates Everwin, the annual corporate registration, which Kryman included as an attachment to his order to show cause, indicates that, as of March 10, 2011, Leung owns 60% of Everwin's shares and serves as the sole director, while Chan Wang Bun owns 40% of the shares and serves as secretary.

Footnote 3: Defendants claim that Fantastic had a significant business relationship with Leung well before introducing him to Kryman and provided invoices that Everwin sent to Fantastic and several related corporations from 2005 to 2007.

Footnote 4: In the complaint and in his affidavit in support of the order to show cause, Kryman admits that "at various points [he] was also involved in sales for Fantastic." Defendants claim that Kryman worked for Fantastic until 2011, when he was caught selling products to competitors.

Footnote 5: While plaintiffs allege that they had no obligation to sell products only to Fantastic, defendants assert that, because of Kryman's employment with the company, he breached his duty of loyalty and engaged in unfair competition by selling to competitors.

Footnote 6: Leung and Everwin claim that they did not ship any products to New York but merely gave specifications to factories that would ship the products directly to his customers.

Footnote 7: While plaintiffs provide case law that, they suggest, supports the proposition that physical presence in New York is generally not required for jurisdiction under CPLR 302 (a) (2), defendants correctly note that the cases they cite all pertain only to CPLR 302 (a) (1). Plaintiffs do not argue that the Court has jurisdiction under this provision.