Obstfeld v Thermo Niton Analyzers LLC

[*1] Obstfeld v Thermo Niton Analyzers LLC 2010 NY Slip Op 50633(U) [27 Misc 3d 1209(A)] Decided on April 13, 2010 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 13, 2010
Supreme Court, Kings County

Lawrence A. Obstfeld and MORNINGSIDE CONSULTING GROUP, INC., d/b/a MORNINGSIDE CAPITAL GROUP, Plaintiff,

against

Thermo Niton Analyzers LLC and THERMO FISHER SCIENTIFIC INC., Defendants.



500152/2009



Attorney for Plaintiff:

Jon Schuyler Brooks, Esq.

Phillips Nizer LLP

666 Fifth Avenue

New York, NY 10103

Attorneys for Defendants:

Jonathan Sablone and Kristin Jamberdino, Esq.

Nixon Peabody LLP

437 Madison Avenue

New York, NY 10022

Carolyn E. Demarest, J.

In an action to recover damages for alleged conversion, unjust enrichment and breach of contract, defendants move to dismiss pursuant to CPLR 3211 (a) (8) based upon plaintiffs' failure to effect proper service, CPLR 3211 (a) (4) based upon the existence of a pending action in Massachusetts and CPLR 3211 (a) (3) based upon plaintiff corporation's lack of standing under Business Corporation Law § 1312 (a).

Facts

Plaintiff Lawrence A. Obstfeld (Obstfeld) is a resident of Brooklyn, New York and allegedly principal of Plaintiff Morningside Consulting Group, Inc. (MCGI), a Delaware corporation doing business as Morningside Capital Group (Morningside). Obstfeld is also the sole member and Managing Director of MorningSight Capital, LLC (MorningSight), a New York [*2]limited liability company also doing business as Morningside. Obstfeld lives and works at 75 Pierrepont Street, Brooklyn Heights, New York, listing that address on the letterhead for Morningside and in the Articles of Organization for MorningSight. The action arises out of a contract dispute based upon a letter agreement executed December 3, 2001 between Morningside and Niton Corporation and later amended on September 6, 2002 [FN1] by Obstfeld and Niton LLC [FN2] whereby Niton engaged Morningside "on an exclusive basis as a financial advisor" (New York complaint ¶ 22).[FN3] Plaintiffs allege that Niton was purchased by Thermo Fisher Scientific Inc. (Thermo Fisher) under its predecessor name, Thermo Electron Corporation. Plaintiffs further allege that Thermo Niton Analyzers LLC (Thermo Niton),[FN4] a Delaware limited liability company with its principal place of business in Massachusetts, is the surviving entity of a merger between Niton LLC and Niton Corporation. On June 9, 2009, plaintiffs commenced this action alleging conversion, unjust enrichment and breach of contract claims by electronically filing a summons with notice in Kings County Supreme Court (the New York action). As both defendants are registered to do business in New York, on October 6, 2009, plaintiffs served defendants with the summons with notice through the New York Secretary of State and, on October 7, 2009, also served defendants through their Registered Agents for Service. On October 27, 2009, the defendants in this action served plaintiffs with a Demand for Complaint by electronic filing. Plaintiffs responded by electronically filing the New York complaint on November 13, 2009.

On October 22, 2009, Thermo filed a summons and complaint in Middlesex County Superior Court in the Commonwealth of Massachusetts (the Massachusetts action), seeking rescission of the Letter Agreement upon which the New York action is premised and a declaratory judgment as to the rights under the Letter Agreement, which is alleged to have been terminated on June 6, 2003. The Massachusetts complaint against "MorningSight Capital, LLC" alleges that MorningSight is the successor-in-interest to MCGI and was also doing business as Morningside. Over the course of October 26 and October 27, Thermo made attempts to serve Obstfeld and MorningSight via personal service and certified mail addressed to 75 Pierrepont Street, Brooklyn Heights, NY, but was unable to complete service and the post office returned the mailings as "unclaimed." On January 26, 2010, the Superior Court dismissed the Massachusetts action pursuant to Standing Order 1-88 due to the "appear[ance] that service of process has not been completed upon the defendant(s) named" (see Brooks Aff., Exhibit 15).[FN5] This motion was made returnable December 24, 2009, and argued March 3, 2010.

Discussion



[*3]Service of the New York Complaint

Defendants move to dismiss, pursuant to CPLR 3211 (a) (8),[FN6] arguing that the plaintiffs never properly served the New York complaint. Defendants' Demand for Complaint stated that the complaint was to be served upon defendants' counsel, Nixon Peabody LLP, "at its offices" (see Jamberdino Aff., Exhibit K) within 20 days after service of the demand on October 27, 2009. The plaintiffs contend that they served the complaint in the requisite 20 days by filing it electronically on November 13, 2009. Although plaintiffs received an email on November 12, 2009, one day before the filing of the New York complaint, indicating that all parties had consented to electronic filing, defendants claim that electronic filing constituted an improper method of service in this action because the defendants had not yet made an appearance and thus, the New York action should be dismissed.

As defendants correctly argue, pursuant to CPLR 3012 (b), a Demand for Complaint "does not of itself constitute an appearance in the action," nor does consent to electronic filing constitute an appearance. The Uniform Rules for Trial Courts, 22 NYCRR 202.5-b [b] [2] [ii], provides that "[t]he filing of a consent to e-filing hereunder shall not constitute an appearance in the action." However, where a party consents to electronic filing, service of papers "shall" be made upon that party by filing electronically (22 NYCRR 202.5-b [b] [2] [iii]).[FN7] Rule 202.5-b [b] [2] [ii] merely preserves the jurisdictional defenses that may be available to a litigant whose counsel agrees to electronic filing.

Defendants also claim that, because they had not yet made an appearance and had not designated their counsel as agents for the purposes of accepting service, the attorneys were not authorized to accept service of the complaint. To the contrary, the defendants did authorize their attorneys to accept service of the complaint by specifically designating in their Demand for Complaint that the complaint be served upon defendants' counsel in their offices. Accordingly, defendants' motion to dismiss on the grounds of failure to serve the complaint is denied.

Pending Action in Massachusetts

Thermo also moves to dismiss the New York action pursuant to CPLR 3211 (a) (4) claiming the Massachusetts action is a pending action "between the same parties for the same [*4]cause of action in a court" (CPLR 3211 [a] [4]). A motion to dismiss pursuant to CPLR 3211 (a) (4) should be granted "where an identity of parties and causes of action in two simultaneously pending actions raises the danger of conflicting rulings relating to the same matter" (see Diaz v Philip Morris Cos., Inc., 2006 NY Slip Op 3042 [U], [2d Dept 2006], citing White Light Prods. v On the Scene Prods., 231 AD2d 90 [1st Dept 1997]).However, the court enjoys "broad discretion in determining whether an action should be dismissed on the ground that there is another action pending between the same parties for the same cause of action" (see Cherico, Cherico and Assoc. v Midollo, 67 AD3d 622 [2d Dept. 2009]). When evaluating a motion to dismiss based on a prior pending action, New York courts employ an analysis similar to that used in evaluating a motion to dismiss based upon forum non conveniens (Flintkote Co. v American Mut. Liab Ins. Co., 103 AD2d 501, 506 [2d Dept 1984], affd 67 NY2d 857 [1986]).

In this case, Thermo's motion to dismiss pursuant to CPLR 3211 (a) (4) must fail because defendants have failed to properly effect service upon Obstfeld and MorningSight of the summons and complaint in the Massachusetts action and, consequently, there is no prior pending action. Between October 26, 2009 and October 28, 2009, a special process server attempted to personally serve Obstfeld and MorningSight at 75 Pierrepont Street by ringing the doorbell multiple times, but received no response. Thermo also attempted to serve MorningSight and Obstfeld via certified mail in compliance with Mass. R. Civ. P. 4(f). The Massachusetts Rules of Civil Procedure require that when service is made by mail to a party outside the Commonwealth of Massachusetts, "proof of service shall include a receipt signed by the addressee or such other evidence of personal delivery to the addressee as may be satisfactory to the court" (Mass. R. Civ. P. 4 (f)). Because the mail never reached MorningSight or Obstfeld and was returned unclaimed [FN8] and without a signed receipt, Thermo did not properly serve Obstfeld and MorningSight under Rule 4(f). After failing to either personally serve Obstfeld and MorningSight or to obtain the signed certified mail receipt, Thermo produced affidavits of attempted service.

Thermo also attempted to serve the Massachusetts summons and complaint upon Phillips Nizer LLP, plaintiffs' counsel in the instant New York action. Obstfeld and MorningSight contend that Thermo's subsequent service upon Phillips Nizer LLP was improper because Obstfeld and MorningSight did not designate the firm to be their agent for the purposes of accepting service in the Massachusetts Action. In fact, Phillips Nizer asserts that it is unable to represent plaintiffs in the Massachusetts action as it is unauthorized to practice law in Massachusetts and maintains no office in the state.

Thermo concedes that the Massachusetts action was dismissed January 26, 2010 because the Superior Court had not received proof of service upon MorningSight and Obstfeld, but claims that it was later reinstated. Thermo has failed, however, to provide any evidence that proper [*5]service has been effected upon plaintiffs.[FN9] Given the court's finding that the New York notice with summons, as well as the New York complaint, were both properly served upon Thermo, and that the Massachusetts summonses and complaint have yet to be properly served upon MorningSight and Obstfeld under Massachusetts law (Mass. R. Civ. P. 4), the court finds that the New York action is prior in time and declines to defer to the Massachusetts action as a prior pending action under CPLR 3211 (a) (4). Accordingly, the motion to dismiss pursuant to CPLR 3211 (a) (4) is denied.

Even assuming that the Massachusetts action were found to be a prior pending action, temporal priority is not dispositive in the action at bar. Although New York courts, as a general rule, rely upon the date of commencement of the action to determine which action should be dismissed,[FN10] the rule should not "be applied in a mechanical way, regardless of other considerations" (White Light Prods. v On the Scene Prods., 231 AD2d at 97). In this particular case, both actions were commenced within months of each other, and the complaints were allegedly served within weeks of each other. Priority to the party bringing the first action should not be the controlling factor when resolving the dispute, "especially when commencement of the competing action[s] has been reasonably close in time" (Flintkote Co. v American Mut. Liab Ins. Co., 103 AD2d at 505).

Irrespective of temporal priority, the moving parties must demonstrate that there exists "sufficient identity as to both the parties and the causes of action asserted in the respective actions" (White Light Prods. v On the Scene Prods., 231 AD2d at 93 citing Walsh v Goldman Sachs & Co., 185 AD2d 748, 749 [1st Dept 1992]). The parties in both actions at issue here are sufficiently identical. The New York action names Obstfeld and MCGI, doing business as Morningside, as plaintiffs and names Thermo Niton and Thermo Fisher as defendants. The Massachusetts action names Thermo Niton and Thermo Fisher as plaintiffs and names Obstfeld and MorningSight, doing business as Morningside, as defendants. Although Morningside and [*6]MorningSight are admittedly not the same entity, Thermo Niton and Thermo Fisher claim that they only brought suit against MorningSight, instead of MCGI, because they believed that, given MCGI's nonpayment of Delaware taxes and the fact that both entities conduct business under the name Morningside, MCGI was defunct and MorningSight was the successor entity. In both actions, the alleged conduct of Obstfeld and the enforceability of the Letter Agreement signed by Niton and Morningside are at issue. The only discrepancies between the cases relate to the relief requested and differing opinions regarding which entity was actually doing business as Morningside. Neither of these differences are material because "the critical element is that both suits arise out of the same subject matter or series of alleged wrongs'" (Cherico, Cherico & Assoc. v Midollo, 2009 NY Slip Op 7972, 1 (2d Dept 2009). Because both actions request a legal determination regarding the enforceability of the Letter Agreement and payment owed under it, there is the potential for conflicting rulings and inconsistent results. The actions are therefore sufficiently identical to warrant dismissal of one action in favor of another.

This court finds that it is the instant New York action that should survive. Neither of the actions has proceeded far, but is unclear whether the Massachusetts Superior Court will be able to exercise personal jurisdiction over Obstfeld or MorningSight, since neither possesses any overt ties to Massachusetts. Thermo Fisher and Thermo Niton, on the other hand, are both registered with the New York Department of State as foreign entities doing business in New York and are clearly subject to the jurisdiction of this court. The Letter Agreement in dispute, by its terms, was "deemed to have been signed and delivered in the State of New York" and New York law was designated in a choice of law provision to resolve legal disputes that may arise (see New York complaint, Exhibit 2). Where, as here, a contract involves $250,000 or more, under General Obligations Law § 5-1401, a "choice-of-law provision in a contract designating that New York law governs the parties' rights and duties shall be given binding effect regardless of whether the contract bears a reasonable relation to New York." Although such provision does not automatically designate New York as the proper forum, it does demonstrate New York's unique interest in retaining the action. While the New York summons does reference Massachusetts General Laws, the New York complaint relies only upon New York law. Moreover, even if plaintiffs failed to demonstrate that "this action is dissimilar in any substantial way to the action pending against them [in Massachusetts]. . . neither have defendants satisfactorily established that the [Massachusetts] action was filed for any purpose except to enforce their choice of forum" (see White Light Prods., Inc. v On the Scene Prods., Inc., 231 AD2d at 100).

Lack of Standing under Business Corporation Law § 1312 (a)

Defendants move, pursuant to CPLR 3211 (a) (3) to dismiss the action because plaintiff MCGI is not authorized to conduct business in New York and is consequently barred from bringing suit pursuant to Business Corporation Law § 1312 (a). Plaintiffs do not contest the assertion that MCGI is not authorized to conduct business in New York but respond by denying that MCGI is, in fact, doing business in New York. Plaintiffs asserts that MCGI is incorporated in Delaware [FN11] and "neither owned nor leased any real estate in New York, had no employees in [*7]New York, had no bank account in New York, had no telephone listings in New York, did not advertise its service in New York, and did not solicit clients or conduct business within New York State for intrastate transactions" (see Obstfeld Aff. ¶ ¶ 48-53). Business Corporation Law § 1312 (a) states that "[a] foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized to do business in this state and it has paid to the state all fees and taxes imposed under the tax law or any related statute." A case-by-case fact-based inquiry is used to determine whether a foreign corporation is actually doing business in New York (see Highfill, Inc. v Bruce and Iris, Inc., 50 AD3d 742, 743 [2d Dept. 2008]). The moving parties must demonstrate that MCGI's business activities are "so systematic and regular as to manifest continuity of activity in this jurisdiction" (see Airline Exchange, Inc. v Bag et al., 266 AD2d 414, 415 [2d Dept 1999]). If no proof is adduced that the plaintiff conducted business in New York, "it is presumed that the plaintiff is doing business in its State of incorporation and not in New York" (id.).

Although plaintiffs claim that MCGI does not own or lease property in New York, Obstfeld, as the signatory of the Letter Agreement, Morningside's alleged "Managing Partner" and MorningSight's Managing Director, lives in Brooklyn, New York and has openly worked from his residence, listing his apartment's address when executing agreements and when corresponding with Niton. The telephone number Obstfeld used when conducting MCGI's business was also his personal New York number. Plaintiffs contend that MCGI did not have any employees in New York, but the statement lacks credibility. Based, apparently exclusively, in New York, Obstfeld is MCGI's agent and employee in that he represents MCGI while doing business as Morningside. As noted, the Letter Agreement expressly provided that it shall be deemed signed and delivered in New York and that New York law would resolve all disputes that may arise. In fact, although MCGI is incorporated in Delaware, there is no evidence presented that MCGI conducts business, within the meaning of Business Corporation Law §1312 (a), in any locale other than New York. Furthermore, MCGI, a Delaware corporation, and MorningSight, a New York limited liability company, though separate entities, both conduct business as Morningside, which implies the interconnected nature of the business Obstfeld conducts from his New York apartment. For the reasons set forth, this court finds that plaintiff MCGI is conducting the type of systematic and regular activity that constitutes doing business in New York within the meaning and intent of 1312 (a) and is precluded from litigating this action without registering as authorized to do business in the State of New York.

Conclusion

The motion to dismiss the complaint of MCGI is granted unless MCGI becomes authorized to do business pursuant to the Business Corporation Law within 20 days of this decision. The motion to dismiss is otherwise denied. Defendants shall serve and file their answer within 30 days. All parties shall appear for a conference at 9:45 A.M. on June 16, 2010.

E N T E R [*8]

__________________J. S. C. Footnotes

Footnote 1:The two letters dated December 3, 2001 and September 6, 2002 are collectively referred to herein as the Letter Agreement. It is noted that neither letter identifies plaintiff MCGI as a contracting party. In the December 3, 2001 letter, Obstfeld signs as the "Managing Partner" of "Morningside Capital Group," which is, apparently incorrectly, identified as, "a Delaware Corporation." In the September 6, 2002 letter, Obstfeld writes the letter in his personal capacity, but allegedly on behalf of Morningside.

Footnote 2:Niton Corporation and Niton LLC are collectively referred to herein as Niton

Footnote 3:The New York complaint refers to the complaint filed electronically by plaintiffs on November 13, 2009.

Footnote 4:Thermo Niton and Thermo Fisher are collectively referred to herein as Thermo

Footnote 5:Thermo claims that the order dismissing the Massachusetts action was later vacated and the action reinstated.

Footnote 6: To support their motion to dismiss pursuant to CPLR 3211 [a] [8], defendants reference Kim v Han, 37 AD3d 662 [2d Dept 2007], reversing the lower court's ruling and dismissing an action because the plaintiff served defendant at an incorrect address in-state where the defendants did not actually live. Personal jurisdiction was therefore never acquired over the defendant in Kim v Han. In this action, plaintiffs properly commenced the action by filing a service with notice and serving it upon defendants through the New York Secretary of State. Personal jurisdiction was obtained over defendants, as entities registered to conduct business in New York, under CPLR 302. It appears from the argument that defendants should have moved to dismiss pursuant to CPLR 3012 [b] which permits the court to dismiss the action if service of the complaint is not made.

Footnote 7:Thermo claims that it was forced to consent to electronic filing due to the specific courthouse practice of Kings County and that such rules may "interfere with parties' rights under the CPLR" (Reply Mem.). Thermo presents two stark alternatives for itself: "fail to file the Demand for Complaint, or file it electronically, which requires an attorney admitted in New York to be assigned to the case" (Reply Mem.). New York court rules, however, do not require that parties consent to filing electronically (22 NYCRR 202.5-b [b] [2] [i], nor do the Rules of Kings County Supreme Court mandate electronic filing. Therefore, Thermo did not have to use the e-filing system to file their Demand for Complaint or Request for Judicial Intervention (22 NYCRR 202.6).

Footnote 8:Thermo accuses Obstfeld and MorningSight of purposefully evading service of the Massachusetts summonses and complaint. Obstfeld explains that he was out of town on business and unavailable at that time to accept personal service. As for the certified mail, Obstfeld claims that the mail was eventually returned to the post office and that, in spite of the arrangements he made to pick it up, the post office returned the mail to sender unclaimed on its own accord.

Footnote 9:The order from the Superior Court of the County of Middlesex, dated January 26, 2010, dismissed the Massachusetts action. This court made an inquiry to the phone number listed on the order (see Brooks Aff., Exhibit 15) and confirmed that, as of the date of this decision, the Massachusetts action was restored, but was advised that the Superior Court has yet to receive proof of service of process and the action may be dismissed again. Massachusetts courts require that service of the summons and complaint be completed within 90 days of filing the complaint unless the serving party is able to show "good cause" as to why it was unable to complete service. If the serving party is unable to show "good cause," the court may dismiss the action without prejudice (see Mass. R. Civ. P. 4 [j] [2010]). "Good cause is a stringent standard requiring diligent, albeit unsuccessful, effort to complete service within the period prescribed by the rule" (see Comm'r of Revenue v Carrigan, 45 Mass App Ct 309, 311[1998] [internal citations omitted]). The facts in Commissioner of Revenue v Carrigan mirror the alleged facts in this action and may prove instructive: plaintiff attempted to serve out-of-state defendant through certified mail, but the mail was returned unclaimed. Defendant then attempted to serve plaintiff's counsel, but counsel claimed it was not authorized to accept service. Plaintiff ultimately accomplished service through a special process server, but the 90-day period to effect service of process had passed. The Appeals Court of Massachusetts reversed the trial court and held that defendant's evasiveness had little bearing on the plaintiff's responsibility to effect service. Because the plaintiff did not demonstrate good cause for failing to effect service of process within 90 days, the complaint was dismissed pursuant to Rule 4 (j).

Footnote 10:The majority of the cases cited by defendants deal with actions involving prior pending actions in different counties of New York State, not prior pending actions in different states.

Footnote 11:Thermo also claims that MCGI lacked standing to bring suit as a Delaware corporation due to nonpayment of taxes. While it is true that MCGI was not in good standing as a Delaware corporation when it brought suit, this defect was cured by proof that, as of January 26, 2010, MCGI has paid the necessary taxes to return to good standing in Delaware (see Obstfeld Aff.).