Humitech Dev. Corp. v Comu

[*1] Humitech Dev. Corp. v Comu 2007 NY Slip Op 51354(U) [16 Misc 3d 1109(A)] Decided on July 11, 2007 Supreme Court, New York County Ling-Cohan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 11, 2007
Supreme Court, New York County

Humitech Development Corporation, King Louie Mining, LLC, King Louie Enterprises, LLC, and Ronald Katz, Individually and as a Shareholder of Humitech International Group, Inc., Suing in the Right of Humitech International Group, Inc., Plaintiffs,

against

Cengiz Jan Comu a/k/a C.J. Comu, Ivan Gati, Thomas Stuart Ducote a/k/a Stuart Ducote, and Paul Stewart, Defendants.



602567/06



Plaintiffs

Humitech Dev. corp., King Louie Mining, LLC, King Louie Enterprises, LLC and Ronald Katz:

John H. Reichman, Esq.

Wachtel & Masyr, LLP

110 East 59th Street

New York, NY 10022

(212) 909 9527

Defendant

C.J. Comu

Peter M. Levine, Esq.

488 Madison Ave., 19th Floor

New York, NY 10022

(212) 599-0009

Doris Ling-Cohan, J.

Upon the foregoing papers, it is ordered that this motion is denied, for the reasons set forth below.

Background

Plaintiffs have brought this action to recover damages, among other things, for fraud, securities fraud, negligent misrepresentation and breach of fiduciary duty, arising out of investments made by plaintiff Ronald Katz (Katz), and two companies he owns and controls, plaintiffs King Louie Mining, LLC (KL Mining) and King Louie Enterprises, LLC (KL Enterprises), in Humitech International Group, Inc. (HIG), joined as a nominal defendant. Katz and his companies made substantial investments in HIG and its subsidiaries, principally in the form of a loan in the amount of $3 million.

Defendant Cengiz Jan Comu a/k/a C.J. Comu (Comu) has moved, pursuant to CPLR 3211 [*2](a) (8), for an order dismissing the complaint on the grounds of lack of personal jurisdiction, or, in the alternative, pursuant to CPLR 327 (a), for an order dismissing the complaint on the grounds that New York County is an inconvenient forum. This motion implicates the scope of personal jurisdiction pursuant to CPLR 302, New York's long-arm statute, in the context of interstate commercial transactions conducted by means of modern electronic technology.

The Parties

Katz is a citizen of New York State who resides in Nassau County, New York. Katz brings this action in both his individual capacity and his capacity as a shareholder of HIG, suing derivatively on behalf of all of the other shareholders (Affidavit of Comu in Support of Motion [Comu Aff. in Support], Ex. A [Verified Complaint], at ¶ 1). Plaintiff KL Mining is a Delaware limited liability company with a principal place of business located in Nassau County, New York, and Katz is the controlling or managing member of KL Mining (Complaint, at ¶ 3). Plaintiff KL Enterprises is a Delaware limited liability company with a principal place of business located in Nassau County, New York, and Katz is the sole member and the managing member of KL Enterprises (Complaint, at 5; Affidavit of Katz in Opposition to Motion [Katz Aff. in Opp]., at ¶ 4). KL Mining and KL Enterprises both maintain bank accounts at a bank located in New York, New York (Katz Aff. in Opp., at ¶ ¶ 4,5).

Nominal defendant HIG is a Nevada corporation, whose principal place of business was located in Dallas, Texas (Complaint, at ¶ 5). The complaint alleges that HIG has ceased doing business (id.). Plaintiff Humitech Development Corporation (HDC) is a Nevada corporation and was a wholly owned subsidiary of HIG [FN1] (Complaint, at ¶ 2). Defendant Comu, a citizen of the State of Texas who resides in Dallas, Texas, was formerly the Chairman of the Board, the Chief Executive Officer and a major shareholder of HIG (Complaint, at ¶ 6; Katz Aff. in Opp., at ¶ 9). Defendant Ivan Gati (Gati), is a citizen and resident of the State of New York, and was formerly a director and the interim Chief Executive Officer of HIG (Complaint, at ¶ 7). Defendant Thomas Stuart DuCote a/k/a Stuart DuCote (DuCote) is a Texas citizen who resides in Dallas, Texas, and was formerly the Vice President, Chief Financial Officer, Secretary and a Director of HIG (Complaint, at ¶ 8). Defendant Paul Stewart (Stewart)[FN2] is a Texas citizen and a resident of Dallas, Texas, who was allegedly held out to be an attorney and a franchise specialist (Complaint, at ¶ 9).

The Underlying Transactions Between Katz, his Companies, Comu, Gati and HIG

The versions of the facts concerning the underlying transactions contained in the affidavits submitted by Comu and Katz differ in material respects. In view of the fact that this is a motion to dismiss the complaint, the facts set forth below are based on the allegations in the complaint, as supplemented by the affidavit of Katz, unless otherwise indicated.

1. The Business of HIG and its Subsidiaries [*3]

HIG was founded by Comu in or about August 2001 and began operations several months later (Comu Aff. in Support, at 6). HIG was engaged in the business of manufacturing and distributing panels for use in refrigeration systems to regulate humidity and reduce temperatures. An essential component of HIG's refrigeration panels was a mineral known as Sorbite, which absorbs humidity and reduces air temperatures, thereby decreasing energy use and operating costs (Complaint, at ¶ 13).

HIG had several wholly owned subsidiaries. As noted above, HDC was a wholly owned subsidiary of HIG, which was formed in 2004 to acquire and own certain mining rights for the Sorbite mineral (Complaint, at ¶ 15). Comu asserts that he was the Chief Executive Officer and the sole director of HDC from the date of its incorporation until in or about April 2006, when KL Mining acquired HDC after foreclosing upon the HDC stock securing the loan made by Katz, through KL Mining, to HIG (Comu Aff. In Support, at ¶ 8; Complaint, at ¶ ¶ 2,3). When Comu was CEO of HDC, the company maintained its sole office in Las Vegas, Nevada, where it had a facility to manufacture Sorbite panels (Comu Aff. in Support, at ¶ 8. The other major wholly owned subsidiary of HIG was the Humitech Franchise Corporation (HFC), which owned the company's franchise contracts with franchisees, through which HIG distributed its industrial products (Complaint, at ¶ 15; Comu Aff. in Support, at 11). HFC, a Nevada corporation, had its sole office in Dallas, Texas and sold franchises throughout the United States (Comu Aff. in Support, at ¶ 11).

2. Initial Solicitation of Katz by Comu and Gati

Katz asserts that he first became aware of HIG in the spring of 2003, when he was solicited by Gati in New York, allegedly acting on behalf of Comu and HIG, to provide capital for the company and, then, to purchase an HIG franchise for Nassau and Suffolk counties in New York (Katz Aff. in Opp., at ¶ 11). According to Katz, Gati introduced him to Comu, and Katz spoke with Comu by telephone throughout the summer of 2003 (Katz Aff. in Opp., at ¶ 12). Comu asserts that, in or about June 2003, HIG began to raise capital through equity investments in order to purchase the Sorbite mineral rights from Humico, a company owned by California resident, Alan Perlman, which owned a Sorbite mine on the California-Nevada border (Comu Aff. in Support, at ¶ ¶ 13 and 14). According to Comu, Gati introduced him to Katz during a conference call in or about August 2003, and Comu spoke with Katz from HIG's Dallas, Texas office (Comu Aff. in Support, at ¶ 14). Katz told Comu during the conference call that, based upon his discussions with Gati, he wanted to purchase the franchise for Long island, New York (id.).

Katz asserts that during his conversations with Gati and Comu in the summer of 2003, they made misrepresentations concerning HIG's business and products in order to induce him to invest in the company. These misrepresentations, which Katz later discovered were false, included: (1) that HIG's products were unique and no similar products were being sold elsewhere; and (2) that the Sorbite mineral was only available in one place in the world, in mines located in the California desert, and that HIG had exclusive access to these mines (Katx Aff. in Opp., at ¶ 12). In August 2003, Katz made his first investment in HIG, by sending a check in the amount of $50,000, drawn on the New York bank account of KL Enterprises, to HFC, to be used as a payment toward the franchise fee for the proposed Long Island franchise (Katz Aff. in Opp., at ¶ 13). Katz asserts that he ultimately decided against purchasing an HIG franchise, but, instead, at [*4]the urging of Comu, he invested the $50,000 in HIG stock [FN3], through a private placement, which Katz later discovered never existed (Katz Aff. in Opp., at 14; Complaint, at ¶ 20). Comu and Gati continued to solicit Katz to invest in HIG, and, in December 2003, Katz invested an additional sum of $135,000 in HIG stock, through KL Enterprises (Katx Aff. in Opp., at ¶ 17; Complaint, at ¶ 21). Katz asserts that by the end of 2003, he became aware that Gati had purchased the HIG franchise for the entire State of New York and had become a director of the company (Katz Aff. in Opp., at ¶ 15). Comu acknowledges that Gati purchased the New York franchise in the third quarter of 2003 (Comu Aff.in Support, at ¶ 11).

3. The KL Mining Loan to HIG

The major investment made by Katz was a loan in the amount of $3,000,000 to HIG, allegedly for the purpose of purchasing the Sorbite mining rights from Perlman's company, Humico. Katz asserts that, throughout the remainder of 2003 and continuing into the early part of 2004, he spoke with Comu, by telephone form New York, and with Gati, by telephone and in person, and they solicited him to make a substantial investment in HIG to enable the company to purchase the Sorbite mining rights from Perlman (Katz Aff. in Opp, at ¶ 18; Complaint, at ¶ 22). Comu advised Katz that the acquisition of the Sorbite mining rights would make HIG more profitable, by giving it complete control over the essential component of its products [FN4] (id.).

Katz asserts that Comu traveled to New York to meet with him and other potential investors, Martin Edelman and Fisher Brothers, a New York investment group (Katz Aff. in Opp., at ¶ 19). According to Katz, Comu reiterated, during the New York meeting, the fraudulent representations that HIG's product was unique, the company had exclusive access to the Sorbite mineral, and HIG's franchise system was operated with legal integrity (id., at ¶ 20). Katz further asserts that Comu failed to disclose, during his New York visit or at any other time, certain material facts, including: (1) a permanent injunction issued by the SEC in November 1989 prohibiting Comu from selling unregistered securities, which he was doing with HIG; (2) an April 1999 permanent injunction issued by the Wisconsin Division of Securities barring Comu from selling unregistered securities in Wisconsin; and (3) an investigation by the SEC in 2001 concerning Comu's involvement in another company, in which Comu invoked the Fifth Amendment (Katz Aff.in Opp., at 21; Complaint, at ¶ 34). Comu acknowledges that he traveled to New York in February 2004, at the request of Katz, to meet with Katz and two other potential [*5]investors: Martin Edelman, whom he asserts was counsel to the law firm of Paul Hastings Janofsky and Walker and William Wachtel, a partner in the law firm of Wachtel and Masyr, LLP, which is representing Katz in this action [FN5] (Comu Aff. in Support, at ¶ 17). Comu asserts that he had three meetings during one day in New York, which he characterizes as "meet and greet" affairs, in which he described HIG's business and gave each participant an "investor pack", containing brochures about the company (id.). Comu asserts that he did not negotiate the terms of any contracts or agreements during his meetings in New York (id.).

After the meeting with Katz in New York, Comu faxed to Katz and Edelman a detailed proposal on February 19, 2004 summarizing the terms of a proposed $2 million investment in HIG to purchase the Sorbite mining rights (Katz Aff. in Opp., at ¶ 22, and Ex. A). Katz asserts that he communicated directly with Comu concerning the proposed investment by telephone, e-mail and facsimile transmissions (Katz Aff. in Opp., at ¶ 25). For example, on April 4, 2005, Katz faxed a counter-proposal for the investment to Comu, which included a seat on HIG's board of directors for Katz, and Comu transmitted his comments to Katz by e-mail (Katz Aff. in Opp., at ¶ 25, and Ex. B). According to Katz, Comu sent to him a document representing that HIG was going to enter into numerous international franchises between May and August of 2004, providing anticipated revenues of approximately $4 million, and Comu asserted that 10% of the proceeds from the franchise sales would be used to pay down the proposed loan from Katz (Katz Aff. in Opp., at ¶ 26, and Ex. C). Katz subsequently learned that the document concerning the anticipated franchise revenue had been fabricated (id., at ¶ 27).

On May 21, 2004, the documents for the loan by Katz's company, KL Mining, to HIG were executed by Katz in New York and by Comu and DuCote, on behalf of HIG in Dallas, Texas (Katz Aff. in Opp., at ¶ 31, and Ex. D; Comu Aff. in Support, at ¶ 19). The loan documents included a Securities Purchase Agreement, a Secured Convertible Debenture and a Security Agreement (Katz Aff. in Opp., Ex. D). The terms of the transaction provided that KL Mining was to loan to HIG a total of $3,000,000, $ 1,000,000 of which was payable on June 21, 2004 and $ 2,000,000 of which was due on May 20, 2006 (id.; Complaint, at ¶ 25). Interest was payable on the unpaid balance on a quarterly basis, with additional interest charged for payments in default (id.). KL Mining, the holder of the secured convertible debenture note, had the right to convert any of the unpaid balance of the loan into HIG stock (Katz Aff. in Opp., Ex. D; Comu Aff. in Support, at ¶ 19). The loan was secured by the capital stock of HDC, the newly created subsidiary of HIG, and the Sorbite mining rights HDC purportedly was to acquire from Perlman using the proceeds of the loan (Katz Aff. in Opp., at ¶ 30, and Ex. D; Complaint, at ¶ 25).

The loan documents contained a broad choice-of-law and forum selection clause providing, among other things, that the agreements were to be governed by New York law and that the parties consented to bring all suits and proceedings related to the loan transaction in the federal or state courts in New York County. Katz asserts he specifically negotiated the choice of law and forum selection clauses with Comu and that he would not have agreed to the loan transaction unless all disputes related to it would be adjudicated in the courts of New York, pursuant to New York law (Katz Aff. in Opp., at ¶ 33). For example, the Securities Purchase [*6]Agreement contains a provision, entitled "Governing Law", which provides, in pertinent part: "5.01 Governing Law THIS AGREEMENT SHALL BE ENFORCED. GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. The parties hereto hereby agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this instrument or the consummation of the transaction contemplated hereby, shall be brought solely in a federal or state court located in the City, County and State of New York. By execution hereof, the parties hereby covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York ... The parties hereto hereby waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. ..."

(Katz Aff.in Opp., Ex. D). The other loan documents contained virtually identical governing law and forum selection clauses.

After the loan documents were executed, KL Mining wired $3,000,000 from its New York bank account to the bank account of HIG in Dallas, Texas (Katz Aff.in Opp., at ¶ 31; Complaint, at ¶ 27). Shortly thereafter, approximately $ 2,000,000 of the loan proceeds was transferred to HDC and then to Perlman, allegedly to acquire the Sorbite mining rights (Katz Aff. in Opp., at ¶ 31). According to Katz, HIG made some of the payments on the loan, by sending checks to KL Mining's bank account in New York (Katz Aff. in Opp., at ¶ 34). After the KL Mining loan closed, Katz became a director on the Board of HIG. (Comu Aff. in Support, at ¶ 19).

In early 2005, Katz asserts that he became aware of Comu's fraudulent scheme, when one of the other investors whom Comu had solicited during another trip to New York advised him of the SEC and Wisconsin injunctions barring Comu from selling unregistered securities (Katz Aff.in Opp., at ¶ ¶ 35 and 37). The Uniform Franchise Offering Circular (UFOC) provided by HIG to the franchisees was defective, as it did not disclose the SEC and Wisconsin injunctions. Accordingly, the franchisees had a right to rescind their franchises and, in some states, to sue for punitive damages (Katz Aff. in Opp., at ¶ 38). HIG ceased to sell franchises in early March 2005, due to the defective UFOC and the company's inability to provide audited financial statements (id., at ¶ 40). In addition, financial irregularities concerning Comu's compensation were revealed, including his alleged receipt of a 5% commission on all franchise sales, without Board approval (id., at ¶ 41).

At a Board meeting held on May 11, 2005, a majority of HIG's directors voted to remove Comu as CEO of the company, and he resigned from Board of HIG shortly thereafter (Katz Aff. in Opp., at ¶ 41; Comu Aff. in Support, at ¶ 21). Gati became interim CEO of HIG. (Complaint, at ¶ 7). Katz asserts that he learned, in the summer of 2005, that Perlman lacked the right and the ability to sell the Sorbite mining rights to HDC in May 2004 (Katz Aff. in Opp., at ¶ 43). HIG defaulted on the KL Mining loan and effectively ceased doing business in or around the first [*7]quarter of 2006 (id., at ¶ 44). HIG presently owes KL Mining over $2 million on the loan [FN6] (id.). In April 2006, KL Mining foreclosed on the HDC stock securing the loan and, thus, KL Mining now owns HDC (Complaint, at ¶ 30).

Discussion

1. Defendant Comu's Motion to Dismiss the Complaint for Lack of Personal Jurisdiction

On a motion to dismiss for lack of personal jurisdiction, plaintiffs bear the burden of establishing a prima facie case that a non-resident defendant, in this case Comu, is amenable to personal jurisdiction in New York (see A.I. Trade Fin., Inc. v Petra Bank, 989 F2d 76, 79 [2d Cir 1993]). Further, the Court must view the jurisdictional allegations in a light most favorable to plaintiffs, the parties seeking to establish jurisdiction (see Ed Moore Adv. Agency, Inc. v I.H.R., Inc., 114 AD2d 484, 486 [2d Dept 1985]).

Plaintiffs allege that Comu is subject to personal jurisdiction in New York pursuant to CPLR 302, New York's long-arm statute. The primary basis for obtaining personal jurisdiction over Comu in this action is CPLR 302 (a) (1), which provides, in pertinent part: "(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:

1. transacts any business within the state or contracts anywhere to supply goods or services in the state; ..."

In order to be subject to personal jurisdiction pursuant to CPLR 302 (a) (1), a defendant must engage in purposeful business activities or transactions in New York and there must be a substantial relationship between the defendant's business activities or transactions in this State and the claims asserted in the complaint (see Deutsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d 65, 71 [2006]; Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 [1988]; Courtroom Television Network v Focus Media, Inc., 264 AD2d 351, 352 [1st Dept 1999]). Personal jurisdiction can be based upon a single transaction by a defendant in New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claims asserted (see Kreutter v McFadden Oil Corp., 71 NY2d at 467; Parke-Bernet Galleries, Inc. v Franklyn, 26 NY2d 13, 16 [1969]).

A defendant is not required to be physically present in New York, in order to be subject to personal jurisdiction pursuant to CPLR 302 (a) (1) (see Deustche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d at 71; Parke-Bernet Gallerieis, Inc v Franklyn, 26 NY2d at 17). Indeed, courts have recognized that the evolution of modern technology has enabled business persons and professionals to transact business by electronic means, using telephones, fax machines and e-mail, as occurred in the instant matter (see Fischbarg v Doucet, 38 AD3d 270, 274 [1st Dept 2007]). As the Court of Appeals observed in Kreutter v McFadden Oil Corp. (71 NY2d at 466): "With the growth of national markets for commercial trade and technological advances in communication and travel systems, however, an enormous volume of business may be [*8]transacted within a state without a party ever entering it."

(see also Duetsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d at 71; Parke-Bernet Galleries, Inc. v Franklyn, 26 NY2d at 17).

The allegations in the complaint, as supplemented by the details set forth in the affidavit submitted by Katz, establish that Comu purposefully availed himself of New York to engage in significant business transactions with Katz and his companies, particularly a $3 million loan allegedly to enable HIG to purchase the Sorbite mining rights. The facts alleged in the complaint and in the affidavit submitted by Katz which, viewed together, establish that Comu purposefully transacted business in New York, within the meaning of CPLR 302 (a) (1), include the following: Comu solicited Katz to invest in HIG by telephone calls to New York beginning in the summer of 2003 (Katz Aff. in Opp., at ¶ 12); Comu negotiated with Katz to sell him the rights to an HIG franchise located in Long Island, New York (Comu Aff. in Support, at ¶ 14); Comu accepted a check from Katz in the amount of $50,000, drawn on the New York bank account of KL Enterprises, as a down payment towards the Long Island franchise (Katz Aff. in Opp., at ¶ 13; Comu Aff.in Support, at ¶ 14); and Comu met with Katz and other potential investors during a trip to New York, in a further effort to convince them to invest in HIG (Katz Aff. in Opp., at ¶ ¶ 19, 20). Indeed, Comu acknowledges that he traveled to New York in February 2004 to meet with Katz and others, but he characterizes this as a "meet and greet" affair, rather than meetings for substantive business negotiations (Comu Aff. in Support, at ¶ 17). Following this February 2004 meeting, Comu and Katz exchanged written proposals for the loan to HIG, using facsimile machines and e-mail (Katz Aff. in Opp., at ¶ 22, and Ex. A). When the negotiations for the KL Mining loan were completed, Katz executed the loan documents in New York, on behalf of KL Mining, and Comu, along with DuCote, executed the documents in Dallas, Texas on behalf of HIG and HDC (Katz Aff. in Opp., at ¶ 31) . As provided by the loan documents, HIG made some payments towards the interest and principal to KL Mining's bank account in New York (Katz Aff. in Opp., at ¶ 34). After the loan closed, Katz and Comu maintained an ongoing business relationship, until in or about May 2005, as Katz became a director on the Board of HIG (Comu Aff. in Support, at ¶ 19)..

Accordingly, the facts alleged in the complaint and in the affidavit submitted by Katz, and in some cases conceded by Comu, establish that Comu, a sophisticated businessman, purposefully availed himself of the New York forum, the major national financial center, in order to obtain from Katz and his companies a substantial investment for HIG, in the form of the KL Mining loan. Additionally, Comu has conceded that he negotiated with Katz to sell him an HIG franchise for Long Island, New York. In Deutsche Bank Sec., Inc. v Montana Bd. of Invs.(7 NY3d 65), the Court of Appeals concluded that personal jurisdiction in New York existed pursuant to CPLR 302 (a) (1) over the defendant Montana Board of Investments (MBOI), a state agency charged with managing investments of public funds, based upon its dealings, primarily through an electronic messaging system with plaintiff's New York office, resulting in a significant bond sale, which was the subject of the litigation. The Court of Appeals observed: "As distinct from an out-of-state individual investor making a telephone call to a stockbroker in New York (see Rothschild, Unterberg, Towbin & McTamney, 59 NY2d 651 [1983]), MBOI is a sophisticated institutional trader that entered New York to transact business here by knowingly initiating and pursuing a negotiation with a DSBI [*9]employee in New York that culminated in the sale of $ 15 million in bonds. Negotiating substantial transactions such as this one was a major aspect of MBOI's mission ..."

(Deutsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d at 71-72; see also Fischbarg v Doucet, 38 AD3d at 273-275 [defendants, a California resident and her company, were subject to personal jurisdiction in New York pursuant to CPLR 302 [a] [1] in an action to recover legal fees brought by the plaintiff attorney, as the Court found that defendants sought legal advice from plaintiff regarding an Oregon copyright case, by telephone calls, facsimile transmissions, mail and courier communications, on a consistent basis over a period of approximately one year]; L & R Exploration Venture v Grynberg, 22 AD3d 221 [1st Dept 2005] [, lv denied 6 NY3d 749 [2005] [personal jurisdiction existed in New York pursuant to CPLR 302 [a] [1] where a foreign domiciliary solicited significant amounts of money from New York investors by telephone and mail and visited with them in New York on several occasions to discuss the parties' joint venture]; Courtroom Television Network v Focus Media, Inc., 264 AD2d 351 [personal jurisdiction existed in New York pursuant to CPLR 302 [a] [1] where defendant California corporation sent numerous taped advertisements to New York to be broadcast over plaintiff's cable network]).

Similarly, in the instant case, plaintiffs have alleged that there were significant contacts between Comu and Katz in New York, by telephone, e-mail and facsimile, as well as a visit by Comu to New York, over a substantial period of time (beginning in the summer of 2003 and lasting until in or about May 2005). Comu's contacts with Katz in New York resulted in major investments in Comu's business, including the $3 million KL Mining loan, purchases of HIG stock, and negotiations for the purchase of a New York franchise. The transactions between Comu and Katz, and their respective businesses, are the subject of this action, as Katz and the other plaintiffs have alleged that their investments in HIG were induced by Comu's fraudulent misrepresentations and omissions. Accordingly, plaintiffs have alleged sufficient facts to satisfy both of the prerequisites for personal jurisdiction over Comu pursuant to CPLR 302 (a) (1), a purposeful business transaction in New York which is substantially related to the claims in the instant litigation (see Deutsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d at 71; Kruetter v McFadden Oil Corp., 71 NY2d at 467).

In addition to Comu's substantial purposeful business transactions in New York, another factor supporting the existence of personal jurisdiction pursuant to CPLR 302 (a) (1) is the broad forum selection and choice-of-law clause in the loan documents for the KL Mining Loan. In the forum selection clause, the parties to the KL Mining loan, Comu's company, HIG, and Katz's company, KL Mining, agreed, among other things "... that any suit or proceeding arising directly and/or indirectly pursuant to or under this instrument or the consummation of the transaction contemplated hereby, shall be brought solely in a federal or state court located in the City, County and State of New York" (Katz Aff. in Opp., Ex. D [emphasis supplied]). The parties specifically agreed to submit to personal jurisdiction in the courts located in the City, County and State of New York and to waive the defense of lack of personal jurisdiction (id.). The courts of New York consider a forum selection clause to be valid and enforceable, and to afford a sound basis for the exercise of personal jurisdiction over a foreign defendant (see National Union Fire Ins. Co. of Pittsburgh, Pa. v Williams, 223 AD2d 395, 398 [1st Dept 1996]; see also Sterling Natl. Bank, as Assignee of Norvergence, Inc. v Eastern Shipping Worldwide, Inc., 35 AD3d 222 [1st [*10]Dept 2006]; Boss v American Express Fin. Advisors, Inc., 15 AD3d 306, 307-308 [1st Dept 2005], affd 6 NY3d 242 [2006]).

Comu does not assert that the broad forum selection clause is unenforceable due to fraud or overreaching, or that it is unreasonable, unfair or contravenes a strong public policy (see National Union Fire Ins. Co. v Williams, 223 AD2d at 398). Instead, Comu asserts that the forum selection clause in the KL Mining loan documents is binding only on the corporation, HIG, and does not subject him, as an individual officer and director of the corporation, to personal jurisdiction in New York. Comu's arguments are flawed for several reasons. First, the forum selection clause is extremely broad, and encompasses an action, like the instant case, which arises directly or indirectly from either the agreements for the KL Mining loan or the consummation of the transaction contemplated by those agreements. Further, New York has declined to invoke the fiduciary shield doctrine to insulate a corporate officer or director from personal jurisdiction in New York, if he engages in purposeful business transactions in this State, as Comu did in this case (see Kreutter v McFadden Oil Corp., 71 NY2d at 467-473).

In addition, there is no merit to Comu's argument that the allegations in the complaint are insufficient to support the existence of personal jurisdiction pursuant to CPLR 302 (a) (1), to the extent that jurisdiction is based upon assertions that Gati acted as Comu's agent in New York. Even assuming, for the sake of argument, that the allegations in the complaint do not set forth sufficient facts to establish the prerequisites for an agency relationship, specifically that Gati engaged in purposeful activities in New York for the benefit of Comu, and that Comu exercised sufficient control over Gati to make him his agent (see Polansky v Gelrod, 20 AD3d 663 [3d Dept 2005]), this does not defeat personal jurisdiction over Comu. As has been discussed above, the allegations in the complaint, as supplemented by the affidavit submitted by Katz, set forth sufficient facts to establish personal jurisdiction over Comu pursuant to CPLR 302 (a) (1), based upon his own purposeful transaction of business in New York, along with the broad New York forum selection clause in the loan documents [FN7]. [*11]

Lastly, personal jurisdiction must exist over a foreign defendant in New York pursuant to the requirements of the long-arm statute in CPLR 302 (a) (1), but also such jurisdiction must be consistent with constitutional due process standards. In order to satisfy the requirements for due process, a foreign defendant must "have certain minimum contacts with [the forum state, in this case New York] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice' ..." (International Shoe Co. v Washington, 326 US 310, 316 [1945] [parenthetical supplied and citations omitted]; see also World-Wide Volkswagen Corp. v Woodson, 444 US 286, 292-291 [1980]). Significantly, the Court of Appeals has held that New York's long-arm statute, CPLR 302, does go as far as is constitutionally permissible (see Banco Ambrosiano, S.p.A. v Artoc Bank & Trust Ltd., 62 NY2d 65, 71 [1984]; see also Kreutter v McFadden Oil Corp., 71 NY2d at 471). Accordingly, in view of the conclusion that personal jurisdiction exists in New York over Comu pursuant to CPLR 302 (a) (1), such jurisdiction is consistent with constitutional due process standards. Moreover, as discussed in detail above, Comu's significant business transactions in New York, as well as his submission to jurisdiction in New York pursuant to the broad forum selection clause in the KL Mining loan documents, constitutes sufficient minimum contacts with this State, such that maintaining this action in New York "does not offend traditional notions of fair play and substantial justice" (see International Shoe Co. v Washington, 326 US at 316).

2. Forum Non Conveniens

In the alternative, defendant Comu moves to dismiss this action on the grounds that New York is an inconvenient forum, within the meaning of CPLR 327 (a), which provides: "When the court finds that in the interest of substantial justice the action should be heard in another forum, the court, on the motion of any party, may stay or dismiss the action in whole or in part on any conditions that may be just. The domicile or residence in this state of any party to the action shall not preclude the court from staying or dismissing the action."

The doctrine of forum non conveniens is employed, at the discretion of the court, to dismiss actions which, "although jurisdictionally sound, would be better adjudicated elsewhere" (Islamic Republic of Iran v Pahlavi, 62 NY2d 474, 479 [1984], cert denied 469 US 1108 [1985]). "The burden rests upon the defendant challenging the forum to demonstrate relevant private or public interest factors which militate against accepting the litigation" (id.). The court must consider and balance various competing factors, in order to exercise its sound discretion to determine whether to retain jurisdiction over the action (id.). The Court of Appeals then stated, "Among the factors [*12]to be considered are the burden on the New York courts, the potential hardship to the defendant, and the unavailability of an alternative forum in which plaintiff may bring suit" (id.; see also Banco Ambrosiano v Artoc Bank & Trust Ltd., 62 NY2d at 73). "It is well established law that unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed'..." (Waterways Ltd. v Barclays Bank PLC, 174 AD2d 324,327 [1st Dept 1991] [citation omitted]; see also Hudson Ins. Co. v M.J. Oppenheim, 35 AD3d 168. 169 [1st Dept 2006]).

In the instant case, defendant Comu has not met the heavy burden to disturb plaintiffs' choice of a New York forum.Comu's conclusory assertions that certain unidentified witnesses and documents are located in Texas does not suffice to establish that New York is an inconvenient forum for this action (see Banco Ambrosiano v Artoc Bank & Trust Ltd., 62 NY2d at 74). Indeed, plaintiffs have mentioned specific witnesses with information relevant to the allegations in this action, including Martin Edelman, Harris Shapiro and representatives of the Fisher Brothers, who reside in New York (see Plaintiffs' Memorandum of Law in Opposition, at 12). Further, the New York choice-of-law clause in the KL Mining loan documents makes it highly likely that this action will be determined in accordance with New York law (see HH Princess Zarina Zainal v America-Europe-Asia Intl. Trade and Mgt. Consultants Ltd., 248 AD2d 279 [1st Dept 1998]; Waterways Ltd. v Barclays Bank PLC, 174 AD2d at 327). As has been discussed in detail herein, significant events in the transactions underlying this action occurred in New York (see Georgia-Pacific Corp. v Multimark's Intl., Ltd., 265 AD2d 109, 112 [1st Dept 2000]; Waterways Ltd. v Barclays Bank PLC, 174 AD2d at 327). The courts of New York will not be unduly burdened by this action, which involves a commercial dispute of the type frequently brought in the courts of this State and County (see Hudson Ins. Co. v M.J. Oppenheim, 35 AD3d at 169; Georgia-Pacific Corp. v Multimark's Intl., 265 AD2d at 112). Furthermore, the forum selection clause in the loan documents provided that all suits "arising directly and/or indirectly"out of the consummation of the KL Mining loan "shall be brought solely in a federal or state court located in the City, County and State of New York", and the parties to the loan documents agreed to "waive any claim that any such jurisdiction is not a convenient forum ..." (Katz Aff. in Opp., Ex. D).

Finally, the action currently pending in the United States District Court for the Northern District of Texas, entitled Lippe & Perry, PC v Perry, et al., does not provide an alternative forum for litigation of the issues involved in this action (see Katz Aff. in Opp., Ex. F). The Texas case involves different issues than those involved in the instant natter, as the cross-claims and third-party claims against Katz and Wachtel concern their sale of HIG stock to foreign franchisees of the company in the spring of 2006, after Comu was removed as the company's Chief Executive Officer and Chairman of its Board of Directors (Comu Aff. in Support, Ex. B). Indeed, as plaintiffs have pointed out, the cross-claims and third-party claims may never be litigated as the attorneys for the foreign franchisees have brought a motion to withdraw as counsel (Katz Aff. in Opp., Ex. F). Therefore, defendant Comu has shown no basis to disturb plaintiffs' choice of a New York forum for this action and is, thus, not entitled to dismissal on the grounds of forum non conveniens.

Accordingly, it is

ORDERED that defendant Comu's motion to dismiss this action on the grounds of lack of personal jurisdiction or, alternatively, on the grounds of forum non conveniens, is denied; and it [*13]is further

ORDERED that the parties shall expeditiously complete discovery; and it is further

ORDERED that, within 30 days of entry, plaintiffs shall serve upon all parties to this action, a copy of this decision and order, together with notice of entry.

This constitutes the Decision and Order of the Court.

Dated:ENTER:,

Doris Ling-Cohan, JSC Footnotes

Footnote 1: HDC was originally headquartered in Las Vegas, Nevada, when it was formed in or about 2004 (Complaint, at ¶ 2; Comu Aff. in Support, at ¶ 8). In or about April 2006, KL Mining acquired HDC, after foreclosing upon the HDC stock securing the loan made by Katz, through KL Mining, to HIG. Accordingly, in or after April 2006, HDC's principal place of business was moved to Nassau County, New York (see Complaint, at ¶ ¶ 2,3).

Footnote 2: A stipulation of discontinuance has been filed with respect to defendant Stewart.

Footnote 3: Comu asserts that Katz never paid the balance of $100,000 needed to purchase the franchise, and, with the permission of Katz, Comu used his initial $50,000 investment to purchase HIG common stock, and used the funds for the company's operations (Comu Aff. in Support, at ¶ 16).

Footnote 4: According to Comu, at some time after he sent the check for the initial $50,000 investment, Katz told him he could provide $2 million to finance the purchase of the Sorbite mining rights, but he wanted to see Humico's Sorbite mine before making the investment. (Comu Aff. in Support, at ¶ 15). Comu then arranged for Katz to visit him at HIG's offices in Dallas, Texas, and then to travel to Las Vegas, Nevada to meet with Gati and Perlman. Katz drove with Perlman, Comu and Gati to visit the Sorbite mine (id.). After the visit to the mine, Katz told Comu that he would pay the remainder for the HIG franchise (id.). Comu does not give a date for this visit to the Sorbite mine and this visit is not mentioned in the complaint or in the affidavit submitted by Katz.

Footnote 5: According to Comu, Edelman and Wachtel indicated that they were not interested in making investments in HIG (Comu Aff. in Opp., at ¶ 17).

Footnote 6: According to Comu, Katz and his attorney, Wachtel, carried out a campaign to prevent HIG and HDC from repaying the loan, so that KL Mining could seize control of HDC and its mining rights (Comu Aff. in Support, at ¶ 20).

Footnote 7: In addition to asserting that personal jurisdiction exists in New York over Comu pursuant to CPLR 302 (a) (1), plaintiffs assert that CPLR 302 (a) (3) (ii) provides an alternative basis for personal jurisdiction under the long-arm statute. This provision allows the New York courts to exercise personal jurisdiction over any non-domiciliary who "commits a tortious act without the state causing injury to person or property within the state ... if he... expects or should reasonably expects the act to have consequences within the state and derives substantial revenue from interstate or international commerce." Plaintiffs base their allegations of jurisdiction pursuant to this provision on the alleged fraudulent misrepresentations made by Comu in Texas and other locations outside of New York, concerning HIG and its business, which caused Katz and his companies to incur financial losses within New York. Plaintiffs' attempt to establish jurisdiction pursuant to CPLR 302 (a) (3) (ii) is problematic, as the New York courts generally hold that the situs of the injury for a tort is where the events giving rise to the injury occurred, and is not based upon the fact that a defendant who happens to incur an indirect financial loss is domiciled in New York (see Fantis Foods, Inc. v Standard Importing Co., 49 NY2d 317, 326 [1980]; O'Brien v Hackensack Univ. Med. Ctr., 305 AD2d 199, 201-202 [1st Dept 2003]). Plaintiffs rely upon a line of cases decided by the federal courts holding that, in the context of certain fraud allegations, personal jurisdiction can exist in New York pursuant to CPLR 302 (a) (3) (ii), where the defendant intends that misrepresentations be relied upon by the plaintiff in New York and the plaintiff's reliance thereon results in direct financial losses incurred in New York (see, e.g. Hargrave v OKI Nursery, Inc., 636 F2d 897, 899-900 [2d Cir 1980]; Palace Exploration Co. v Petroleum Dev. Co., 41 F Supp2d 427, 434-436 [SD NY 1998] [citing Hargrave]). The above federal cases have not, however, been cited by New York state courts. In view of the strong case for personal jurisdiction over Comu pursuant to CPLR 302 (a) (1), however, it is not necessary to establish jurisdiction pursuant to CPLR 302 (a) (3) (ii).