Forward Foods LLC v Next Proteins, Inc.

[*1] Forward Foods LLC v Next Proteins, Inc. 2008 NY Slip Op 52058(U) [21 Misc 3d 1113(A)] Decided on October 15, 2008 Supreme Court, New York County Solomon, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 15, 2008
Supreme Court, New York County

Forward Foods LLC AND EMIGRANT CAPITAL CORPORATION, Plaintiffs,

against

Next Proteins, Inc., DAVID A. JENKINS and BLUEGRASS BARS, LLC, Defendants.



603892-2007



Plaintiffs were represented by Robert L. Begleiter, Esq., of Constantine Cannon, LLP, 450 Lexington Avenue, 17th Floor, New York, NY 10017, tel. no. 212-350-2700; defendants were represented by Seth T. Taube, Esq., of Baker Botts, LLP, 30 Rockefeller Center Plaza, New York, NY 10112, tel. no. 212-408-2500.

Jane S. Solomon, J.

INTRODUCTION

Plaintiffs commenced suit for, inter alia, breach of contract and fraud arising out of the sale of a food product business.Defendants move to dismiss under CPLR § 3211(a)(8) (lack of personal jurisdiction) and CPLR § 327(a) (forum non conveniens). As set forth below, the motion is granted pursuant to CPLR § 327(a).

FACTS

Plaintiff Forward Foods, LLC ("Forward") is a Delaware limited liability company with its principal place of business in Nevada. Forward purchased a protein bar business from defendant Next Proteins, Inc. ("Next Proteins"), a California corporation with its principal place of business in Carlsbad, California. David Jenkins("Jenkins") is the President and Chief Executive Officer of Next Proteins.

Plaintiff Emigrant Capital Corporation ("Emigrant") is a Delaware corporation with its principal place of business in New [*2]York.[FN1] Emigrant is a private investment firm that owns a 94% voting interest in Forward. Defendant Bluegrass Bars ("Bluegrass") is a Nevada limited liability company and a wholly-owned subsidiary of Next Proteins. Before Next Proteins sold its protein bar business to Forward, Bluegrass owned Next Proteins's manufacturing assets in Nevada. These assets were included in the sale to Forward.

In 2006, Emigrant learned that Next Proteins was selling its protein bar business. On March 27, 2006, Emigrant representatives traveled to the Rancho Valencia Resort and Spa in Rancho Santa Fe, California to attend a presentation given by defendants. A month later, Emigrant representatives traveled to La Costa Resort in Carlsbad, California to negotiate the sale of the protein bar business with Next Proteins. Representatives from Emigrant also traveled to Minden, Nevada to see Bluegrass's manufacturing assets, and to attend another meeting with Next Proteins in Reno.

Next Proteins engaged a Boston-based investment banker, Canaccord Adams, to arrange for the sale of the protein bar business and hired the Minnesota-based Merrill Corporation, to set up a virtual data room. Next Proteins uploaded electronic documents concerning their business to the virtual data room. Entities interested in buying the business were granted access to the data room through a password, and could download and examine the documents.

Next Proteins gave Emigrant access to the virtual data room and Emigrant used the room to review Next Protein's documents and perform its due diligence. At times, Emigrant requested additional documents and Next Proteins or Canaccord Adams responded by uploading the documents to the virtual data room. Next Proteins also sent some additional documents to Emigrant as email attachments.

On May 17, 2006, Emigrant sent Next Proteins a Letter of Intent to purchase the protein bar business for $29.5 million and after a shortfall in April sales figures, Emigrant renegotiated the sale price to $27.5 million. Emigrant hired the accounting firm of Grant Thornton to travel to Next Proteins's California offices and perform additional due diligence.

In June of 2006, Jason Stephens ("Stephens"), Next Proteins's Director of Health and Fitness sales channel, met with Emigrant representatives in New York to continue negotiating the transaction. Stephens and Emigrant discussed Next Proteins's performance and the protein bar business in general. Additional meetings between Emigrant and Next Proteins took place in [*3]California in late June.

On September 1, 2006, Forward and Next Proteins entered into a Purchase and Sale Agreement (the "Purchase Agreement"), pursuant to which Next Proteins would sell its protein bar business to Forward for the sum of $27.5 million. Forward had also entered into a financing agreement with the New York-based CIT Group/Commercial Services ("CIT") to finance the deal. As an additional part of the deal, Forward entered into a consulting agreement with Jenkins (the "Consulting Agreement"), under which Jenkins would provide services to Forward regarding aspects of the protein bar business.

In the three months following the deal sales of the protein bars dropped significantly. Plaintiffs allege, inter alia, that in the months leading up to the sale, defendants knowingly misled Plaintiffs about the viability of the protein bar business that Forward purchased. On November 26, 2007, Plaintiffs commenced suit against defendants for: (1) breach of the Purchase Agreement; (2) breach of the duty of good faith and fair dealing; (3) fraud; (4) rescission of the Consulting Agreement. The first two causes of action were brought against Next Proteins and Forward, but not Jenkins. The third cause of action was asserted against all of the defendants and the fourth cause of action was brought solely against Jenkins. Defendants now move to dismiss under CPLR § 3211(a)(8) for lack of personal jurisdiction and under CPLR § 327(a) based on forum non conveniens.[FN2]

DISCUSSION

I. PERSONAL JURISDICTION

When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff has the burden of establishing a prima facie case for jurisdiction over the defendant. Fantis Foods, Inc. v. Standard Importing Co., 49 NY2d 317, 325 (1980). The facts pleaded in the complaint and affidavits should be construed in the light most favorable to the plaintiff. Sokoloff v. Harriman Estates Dev. Corp., 96 NY2d 409, 414 (2001).

New York's long-arm statute allows courts to exercise

personal jurisdiction over nondomiciliaries as follows:As to a cause of action arising from any of the acts enumerated in this [*4]section, a court may exercise personal jurisdiction over any nondomiciliary . . . 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[.]

CPLR § 302(a). In order for a court to exercise jurisdiction over a defendant under § 302(a), a defendant must be transacting business within the state, and the cause of action must "arise out of" the business transaction. Cutco Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986).

A nondomiciliary transacts business within the state if he "purposefully avails himself of the privilege of conducting activities within New York, thus invoking the benefits and protections of its laws." Id (citations omitted). Courts should examine the totality of the defendant's contacts with the state to decide whether the defendant was transacting business under the statute. Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc.,15 NY2d 443, 457, n.5 (1965). Section 302 is a "single-act statute," meaning that a single transaction made by the defendant may be sufficient for a defendant to be transacting business under the statute. Kreutter v. McFadden Oil Corp., 71 NY2d 460, 467 (1988). The statute does not require the defendant to be physically present to transact business within the state. Parke-Bernet Galleries, Inc. v. Franklyn, 26 NY2d 13 (1970).

A meeting between a plaintiff and defendant, coupled with additional phone calls, may be enough for the court to exercise jurisdiction, provided the subject matter of the meeting and phone calls sufficiently relate to the transaction out of which the action arises:

The only activity which plaintiffs allege is connected to their . . . claim against defendants is one meeting in New York between defendants and Manhattan Life, and follow-up letters to that meeting. These contacts are of sufficient quantity to find that defendants were transacting business if the meeting in New York had some substantial or critical relationship to the matters which form the basis for this litigation. If, on the other hand, the New York meeting concerned matters between defendants and Manhattan Life which are outside the scope of the transaction in question, CPLR § 302(a)(1) jurisdiction would be improper.

Manhattan Life Ins. Co. v. A.J. Stratton Syndicate (No. 782), 731 F. Supp. 587, 593 (S.D.NY 1990) (emphasis added). In that case, the Court ruled that jurisdictional discovery would be appropriate to find out whether the meeting that took place in New York between plaintiff and defendant did concern plaintiff's claim. If the New York meeting did concern the transaction which gave rise to action, the Court could exercise personal jurisdiction over the defendant. Even "meetings which merely [*5]create the likelihood of a more solid business relationship" may be sufficient grounds for the court to find that a nondomiciliary has transacted business within the state. Round One Productions, Inc. v. Greg Page Enterprises, Inc., 566 F.Supp 934, 937-38 (E.D.NY 1982).

Here, Defendants' contacts with New York amount to a visit by Jason Stephens, Director of Health and Fitness sales channel, a virtual data room where Defendants uploaded documents for Emigrant to review in New York, and several emails containing additional documents sent to Emigrant in New York. It is undisputed that the meeting between Jason Stephens and Emigrant in New York did concern the sale of Defendants' business to Plaintiff and that Defendants followed up on the meeting with additional emails to New York. Plaintiffs correctly argue that Defendants maintained sufficient contacts with the state of New York and have clearly transacted business within the state such that personal jurisdiction over Defendants under CPLR § 302(a)(1) would be appropriate.

II. FORUM NON CONVENIENS

The doctrine of forum non conveniens, or inconvenient forum, is codified in CPLR § 327(a), which reads:

[w]hen 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 or any party to the action shall not preclude the court from staying or dismissing the action.

(emphasis added).

"The burden rests upon the defendant challenging the forum to demonstrate relevant private or public interest factors which militate against accepting the litigation and the court, after considering and balancing the various competing factors, must determine in the exercise of its sound discretion whether to retain jurisdiction or not." Islamic Republic of Iran v. Pahlavi, 62 NY2d 474, 479 (1984) (citations omitted). The Pahlavi court established several factors for courts to consider when making their decision: "[1] the burden on the New York courts, [2] the potential hardship to the defendant, . . . [3] [*6]the unavailability of an alternative forum in which plaintiff may bring suit, . . . [4] that both parties to the action are nonresidents, and [5] that the transaction out of which the cause of a action arose occurred primarily in a foreign jurisdiction."

Id. at 479. The court noted that "[n]o one factor is controlling," and that the "great advantage of the rule of forum non conveniens is its flexibility based upon the facts and circumstances of each case." Id.

An application of the Pahlavi factors to the present case reveals that New York is an inconvenient forum for this litigation. First, much of the documentation pertaining to this litigation is in California and Nevada. Second, many key witnesses who possess important information concerning the subject transaction are also located in those states. Although the Emigrant employees associated with the transaction are principally located in New York, the employees and principals of Forward, Next Proteins, Bluegrass, and David Jenkins, are mostly located in California and Nevada. Third, all of the parties to this litigation reside and have their principal place of business outside of New York except for Emigrant which is a Delaware corporation, but has its principal place of business in Manhattan.

Fourth, it is clear that California is a convenient alternate forum. In fact, there is already a case relating to the subject transaction pending in a Californian court. Fifth, it would be extremely burdensome for this Court to require the Defendants and all other persons who would participate in the trial of this case to travel from California and Nevada to attend New York proceedings. This is especially true since it is likely that their presence is already needed in the pending California litigation.

In support of the argument that New York is a convenient forum for this action, Plaintiff's point to the fact that there are ties between the subject transaction and New York and cite the June 2006 meeting in New York between Next Proteins and Emigrant as well as the virtual data room (accessed by Plaintiffs from New York) and CIT's involvement in the deal. However, the connections that the transaction had to New York do not alone establish that the motion to dismiss based on forum nonconveniens should be denied particularly where California is clearly a convenient alternate forum. The application of the relevant factors to the present case reveals that in the "interest of substantial justice" the motion to dismiss pursuant to CPLR § 327(a) for forum non conveniens should be granted.

CONCLUSION

Accordingly, it is ORDERED that the branch of defendants' [*7]motion to dismiss pursuant to CPLR § 327(a) is granted and the complaint is dismissed; the branch of defendants' motion to dismiss pursuant to CPLR § 3211(a)(8) is denied.

Dated:October , 2008

____________________

J.S.C. Footnotes

Footnote 1: Forward and Emigrant shall be collectively referred to as "Plaintiffs".

Footnote 2: Plaintiffs have "voluntarily dismissed" its claims against Jenkins citing "lack of jurisdiction" due to a forum selection clause in Jenkins' consulting agreement and do not assert any additional basis for jurisdiction over Jenkins in opposition to the motion. See Plaintiff's Memorandum of Law in Opposition, 4, n.3. The remaining defendants (Next Proteins and Bluegrass) will be collectively referred to as the "Defendants".