author: La PLATA, District Judge.

text:
    James C. FLETCHER, Plaintiff, v. ADVO SYSTEMS, INC., a foreign corporation, Scott Murray, and Peter Carrao, jointly and severally, Defendants.
    No. 85-CV-70599-DT.
    United States .District Court, E.D. Michigan, S.D.
    Sept. 6, 1985.

      Thomas R. Paxton, Detroit, Mich., for plaintiff.
    Ronald G. Acho, Livonia, Mich., for defendants.
   OPINION AND ORDER DENYING PLAINTIFF’S MOTION TO REMAND

La PLATA, District Judge.

On December 27, 1984, Plaintiff, James C. Fletcher, filed a four-count Complaint in the Wayne County Circuit Court against a corporate Defendant and two individual Defendants. Therein, he essentially alleged that he was discharged, without just cause, from his position as a senior accounting executive at Advo Systems, Inc., in violation of a verbal employment contract. Pursuant to 28 U.S.C. § 1441, Defendants removed the action to this Court on February 7, 1985, claiming that one of the Defendants, Scott Murray, a Michigan resident, was included as a party to the lawsuit solely to defeat diversity of citizenship.

On April 29,1985, Plaintiff filed a Motion to Remand to the state court, under 28 U.S.C. § 1447(c), contending that the case was improvidently removed. Plaintiff argues that Murray, as Plaintiff’s supervisor, is jointly liable for his wrongful discharge from Advo Systems, Inc.

According to his Complaint, Plaintiff was hired by Defendant Advo, which is incorporated in the State of Delaware, as a salesman on April 9, 1984. Sometime prior to her termination on October 5, 1984, Plaintiff was promoted to the position of a senior accounting executive. Plaintiff averred that his contract was not terminable at will:

2. That in April of 1984, when the Plaintiff was hired, he was promised that he would have a good future with the Defendant company and that as long as he did his job, he would not be discharged. Further, based upon his employers expressed and/or implicit representations to the Plaintiff, the Plaintiff formed a reasonable reliance that he would not be discharged except for just cause.

In addition to naming his employer as a Defendant, Plaintiff included the firm’s vice-president, Peter Carrao, a resident of Hartford, Connecticut, and Scott Murray, his immediate supervisor, in the lawsuit. In regard to Defendant Murray, Plaintiff did not specifically allege that his former supervisor committed a breach of the purported employment contract, but, in a general and conclusory fashion, stated the three Defendants jointly terminated him from his employment without just cause.

In the instant Motion, Plaintiff maintains that since both Defendant Murray and he are residents of Michigan, the case was improperly removed to federal court. Plaintiff argues that each of the Defendants was an “employer” of his, and, thus, each is individually liable for breaching the alleged contract of employment. In his Motion and supporting brief, Plaintiff emphatically denied that Defendant Murray was included in the lawsuit solely to defeat complete diversity of citizenship.

Opposing the Motion to Remand, Defendants, reasserting that Murray was named as a party defendant in order to thwart a removal from state court, attached the affidavits of Murray and Carrao to demonstrate that Murray neither was involved in nor knew of Plaintiffs termination:

AFFIANT CARRAO:
2. That I, in my capacity, as Vice President of Sales for the Eastern Division, personally conducted the investigation and made the decision to terminate former employee James Fletcher from his position with ADVO SYSTEMS, INC. on or about October 5, 1984.
3. That Mr. Scott Murray, as Regional Director of Sales, did not participate in, nor was he involved in the decision to terminate Mr. Fletcher in any way whatsoever.
4. That, to the best of my knowledge and belief, Mr. Scott Murray had no prior knowledge of the pending termination of Mr. Fletcher.
AFFIANT MURRAY:
2. That I was not involved in any way, directly or indirectly, either personally or in my capacity as Regional Sales Manager, in the decision to terminate James Fletcher from his former position with ADVO SYSTEMS, INC.
3. That, to the best of my knowledge and belief, the termination of Mr. James Fletcher and the investigation relating to the termination were handled entirely by the Corporate Headquarters of ADVO SYSTEMS, INC., under the direction of Mr. Peter Carrao, Vice President of Sales, who conducted interviews separately and privately with each sales employee of the Detroit Branch Office of ADVO SYSTEMS, INC., on or about October 4 and 5, 1984.
4. That I had no knowledge of the investigation or pending termination of Mr. James Fletcher until after the decision to terminate had been made and announced by Vice President Carrao on October 5, 1984.

While recognizing that a federal court is required to remand a case to state court where complete diversity of citizenship is lacking, Defendants argue that the improper joinder of a party defendant who does not have a real connection with the controversy permits a federal court to disregard the joinder and retain jurisdiction. Based on the affidavits of Carrao and Murray, Defendants assert that the Court may make a summary determination that, under state law, Defendant Murray was not involved in Plaintiffs termination and, hence, he was included in the action solely to defeat diversity of citizenship.

Where there are either plural plaintiffs or plural defendants, a federal court is devoid of diversity jurisdiction unless there is a diversity of citizenship between all plaintiffs and all defendants. Despite this precept, if a litigant is not a real party in interest, or is purely a nominal or formal party, his presence in the action may be disregarded in ascertaining jurisdiction.

Fed.R.Civ.P. 21 empowers a trial court to drop a litigant from the lawsuit on its own initiative if that party was misjoined. In Covington v. Indemnity Insurance Company of America, an employee sued a nonresident compensation insurance company in a state court for worker’s compensation benefits. As a party defendant, he named his employer, B.W. Iley, on the basis that he did not carry compensation insurance. The insurance company removed the case to Federal Court, maintaining that the employer was misjoined. The District Court dismissed Iley from the action and denied the Plaintiff’s Motion to Remand. On appeal, the Fifth Circuit Court of Appeals held that the joinder of the employer as a defendant was improper:

If we could agree with appellant’s premise that ‘In the case at bar plaintiff has one cause of action either against the insurance company or against B.W. Iley. He is not sure as to what the courts will ultimately rule with reference to which of the defendants is liable on his one cause of action’, we would certainly agree with his conclusion that the cause was not removable and the action of the court in dismissing Iley and thereafter proceeding to judgment in it was error. We think it clear, however, that the premise is false and finds no support in the record or in law.
On the contrary, while we agree with plaintiff that he had only one cause of action, we think it clear that the original petition, which did not make Iley a party, and the first amended original petition, which did, taken together inescapably show that that one cause of action was exclusively for compensation and that his attempted joinder of Iley in the amended petition was on its face ‘a fraudulent joinder for the purpose of defeating the jurisdiction of the federal court’.

In a case remarkably similar to the matter at bar, Wecker v. National Enameling Co., the plaintiff, who was injured at the factory where he was employed when he fell into an unguarded metal pot containing hot, boiling grease, instituted a negligence claim in a state court in Missouri against his employer and two employees of the plant. A corporation based in New Jersey, Defendant removed the action to the United States District Court for the Eastern District of Missouri. Plaintiff filed a motion to remand, contending that one of the defendants, George Wettengel, a resident of Missouri, was negligent in his supervision of the furnace.

Denying the motion to remand, the trial court ruled that the joining of Wettengel as a party defendant was groundless and fictitious. On a writ of error from the trial court, the United States Supreme Court held that the right of a foreign corporation to remove a case to the federal court cannot be thwarted by the plaintiff’s fraudulent joinder of his co-employee as a defendant:

In view of this testimony and the apparent want of basis for the allegations of the petition as to Wettengel’s relations to the plaintiff, and the uncontradicted evidence as to his real connection with the company, we think the court was right in reaching the conclusion that he was joined for the purpose of defeating the right of the corporation to remove the case to the Federal court.
* * * * * *
While the plaintiff, in good faith, may proceed in the state courts upon a cause of action which he alleges to be joint, it is equally true that the Federal courts should not sanction devices intended to prevent a removal to a Federal court where one has that right, and should be equally vigilant to protect the right to proceed in the Federal court as to permit the state courts, in proper eases, to retain their own jurisdiction.

In the matter at bar, the Court concludes that Scott Murray was joined as a party defendant for the sole purpose of defeating federal jurisdiction. The uncontroverted affidavits of the two individual defendants reveal that Murray not only did not participate in the decision to discharge Plaintiff, but he also was unaware of that decision. Plaintiff failed to set forth in his complaint the involvement, if any, Defendant Murray had in his hiring and discharge. It is evident that Murray, as Plaintiff’s former supervisor, is not an indispensable party to this wrongful termination action.

Therefore, the Court, disregarding Murray’s presence in the lawsuit, DENIES Plaintiff’s Motion to Remand the case to the Wayne County Circuit Court. On its own motion, under Fed.R.Civ.P. 21, the Court, finding that he is not a necessary party and, in fact, was named as a party defendant as a fraudulent device to circumvent the Court’s jurisdiction, drops Defendant Murray from, the lawsuit.

So Ordered.

      . While Plaintiffs Complaint enumerates five-counts, one of the counts consists entirely of general allegations applicable to the lawsuit.

      . Plaintiff’s cause of action is based on the benchmark case of Toussaint v. Blue Cross and Blue Shield of America, 408 Mich. 579, 292 N.W.2d 880 (1980), which held that although employers remain able to enter into employment contracts that are terminable at will without any cause, an employer’s express agreement to discharge only for just cause, or statements of the company’s policy and procedures to that effect, can give rise to rights enforceable in contract. Apart from the breach of contract claim, Plaintiff averred that Defendants committed (1) a breach of an implied duty of good faith and fair dealing; (2) negligence in their evaluation and discharge of Plaintiff; and (3) the tort of intentional infliction of emotional distress in their discharge of Plaintiff.

      . Complaint, Count I, Paragraph 2, p. 2.

      . 28 U.S.C. § 1447(c) prescribes that a District Judge shall remand a case when it appears that it was removed improvidently from a state court.

      . City of Indianapolis v. Chase National Bank, 314 U.S. 63, 69-70, 62 S.Ct. 15, 16-17, 86 L.Ed. 47 (1941).

      . Salem Trust Co. v. Manufacturers’ Finance Co., 264 U.S. 182, 44 S.Ct. 266, 68 L.Ed. 628 (1924); 6 Wright & Miller, Federal Practice and Procedure § 1556 at 710 (1981).

      . See, generally, Wright & Miller, Federal Practice & Procedure, §§ 1682, 1685 (1972).

      . 251 F.2d 930 (5th Cir.1958), cert. denied, 357 U.S. 921, 78 S.Ct. 1362, 2 L.Ed.2d 1365 (1958).

      . Covington at 933.

      . 204 U.S. 176, 27 S.Ct. 184, 51 L.Ed. 430 (1907).

      . Wecker at 185-86, 27 S.Ct. at 188.

      . When a party’s liability to Plaintiff is joint and several, he is not a necessary or indispensable party to the action. See 2 Barron & Holzoff, Federal Practice and Procedure, § 513.8 (Wright ed. 1961); Letmate v. Baltimore and Ohio Railroad, 311 F.Supp. 1059, 1062-63 (D.Md.1970).


source: Caselaw Access Project

author: PATRICK F. KELLY, District Judge.

license: Public Domain

text:
    The FIRST NATIONAL BANK OF AMARILLO, Plaintiff, v. SOUTHWESTERN LIVESTOCK, INC., Defendant.
    No. 85-1021-K.
    United States District Court, D. Kansas.
    Sept. 9, 1985.

      Don Sunderland of Gibson, Ochsner & Adkins, Amarillo, Tex., and Don W. Bostwick of Adams, Jones, Robinson & Malone, Wichita, Kan., for plaintiff.
    Jim H. Goering of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., E. Lawrence Oldfield, Ltd. and Jim Malysiak of Freeman, Freeman, & Salzman, Chicago, Ill., for defendant.
   MEMORANDUM AND ORDER

PATRICK F. KELLY, District Judge.

This is a conversion action against a Kansas auction house for the wrongful sale of livestock in which plaintiff held a security interest. Defendant filed a motion for summary judgment on the ground plaintiff failed to perfect its security interest in Kansas within four months after the livestock were brought into this state from Oklahoma. The Court concludes, however, an unperfected secured creditor may maintain an action for conversion against its debtors’ agent. Defendant’s motion for summary judgment is denied.

Plaintiff First National Bank of Amarillo (FNB) is a Texas bank. In June and July, 1983, it loaned a total of $875,000.00 to Dean and Moeta Newman, individually and d/b/a Newman Farms, and to Larry Paul, all of Oklahoma. Plaintiff perfected its security interest in Oklahoma, in all cattle owned or thereafter acquired by the debtors. In September, 1983, contrary to the security agreements and without informing FNB of their plans, the Newmans transported 76 steers and 70 heifers across the state line into Kansas, where the cattle were sold at auction by defendant Southwestern Livestock, Inc. (Southwestern). Defendant sold the livestock purely on a commission basis and did not have actual notice of the security agreements or the Oklahoma financing statements covering the cattle. The net proceeds of the sale, $47,974.70, were paid by check to Mutual Feeders, Inc., another business run by the Newmans, but the money was never in turn remitted to the bank. At no time within the four months after the cattle were brought into Kansas did FNB perfect its security interest in this state.

I. The Four-Month Rule

Whenever collateral subject to a perfected security interest in one jurisdiction is brought into Kansas, K.S.A. 84-9-103(l)(d) requires that the secured creditor perfect its security interest in this state within four months after the transfer or before expiration of the perfected security interest in the former jurisdiction, whichever period first expires. Where the secured creditor fails to act within the appropriate time period, “the security interest becomes unperfected at the end of that period and is thereafter deemed to have been unperfected as against a person who became a purchaser after removal.”

Southwestern initially contended that because FNB failed to perfect its security interest in Kansas within four months after the cattle entered this state, plaintiff was not a secured creditor and could not maintain this suit for conversion. The bank correctly countered that even though it failed to comply with the four-month rule, it was as a result merely an unperfected secured creditor, not an unsecured creditor. In response, Southwestern then argued that even an unperfected secured creditor may not recover from an auctioneer damages for conversion.

Commenting on a similar situation, Professor Barkley Clark notes:

It is clear by the four-month rule that [a bona fide] purchaser would have priority, assuming that the [collateral] was bought for value and without actual knowledge of the Bank’s security interest. The purchaser need not qualify as a buyer in the ordinary course of business. Bank’s perfection lapsed four months after removal to [the new state]. Bank is left with a cause of action against its debtor for conversion. Failure to police the defalcating debtor would be fatal in such a situation. And the same result would obtain if the competitor were the debtor’s trustee in bankruptcy, a levying creditor, or the competing secured creditor in the state of removal.

Clark, The Law of Secured Transactions Under the Uniform Commercial Code, ¶ 9.4[1] (1980). Noticeably absent from the list of persons entitled to priority over the bank’s interest are auctioneers, brokers, commission merchants, and the like. That is the issue in this case: may an unperfected secured creditor maintain an action against, and recover damages for conversion from, an auction company which sells livestock subject to a security interest created by plaintiff’s debtors?

Before turning to the merits of defendant’s motion, we note the parties agree Kansas law applies to this case. K.S.A. 84-9-103(l)(b) states “perfection and the effect of perfection or non-perfection of a security interest in collateral are governed by the law of the jurisdiction where the collateral is when the last event occurs on which is based the assertion that the security interest is perfected or unperfected.” Under this rule, where the security interest is perfected in one jurisdiction and the collateral is then removed to another, the failure to maintain perfection in the latter jurisdiction is the “last event” to which the rule refers. Id., Official UCC Comment 1. As a result of FNB’s failure to perfect its security interest in Kansas, the bank’s claims are controlled by Kansas law governing priorities and liability for conversion.

II. The Auction House as a “Purchaser”

Southwestern argues it qualifies as a “purchaser” of the livestock under K.S.A. 84-9-103(l)(d), entitled to priority over plaintiff’s unperfected security interest. A “purchaser” is one who takes

... by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an interest in property.

K.S.A. 84-1-201(32), (33) (emphasis added). This broad definition encompasses any voluntary transaction creating an interest in property whether or not there is a price or other consideration. Id., 1983 Kansas Comment (32).

Defendant’s authorities for the proposition it qualifies as a “purchaser” are either distinguishable from this case or provide little guidance. In United States v. Burnette-Carter Co., 575 F.2d 587 (6th Cir. 1978), cert. denied 439 U.S. 996, 99 S.Ct. 596, 58 L.Ed.2d 669 (1979), the Court faced similar facts regarding sale of livestock brought across state lines, followed by the secured creditor’s failure to perfect in the removal state within four months. Under the 1962 Official Text of the UCC, the Court held the defendant livestock auctioneer, who had unauthorizedly sold property subject to plaintiffs security interest, was liable for conversion because plaintiff’s security interest remained perfected in the removal state during that four-month period. The Court went on to opine that a different result would be required under the 1972 Official Text of the UCC, then under consideration by the states, because plaintiff’s unperfected status at the end of the four-month period would relate back. Burnette-Carter Co., 575 F.2d at 592. The statement regarding the consequences of plaintiff’s unperfected status is mere dicta, however, because the case was not decided under the 1972 Text. Southwestern also relies on United States v. Squires, 378 F.Supp. 798 (S.D.Ia.1974), which held under similar facts that the party who fails to perfect its security interest in the “removal” state within four months has a junior interest to a buyer for value who has no knowledge or notice of the security interest after the lapse of four months without perfection in the removal state. Squires provides defendant no support for its position in this case because Southwestern does not qualify as a buyer for value. Lastly, Southwestern points to three cases from the federal district court of Minnesota holding sales agents qualify as “purchasers” of the cattle after removal of the collateral to the new jurisdiction. United States v. Kost Security, Inc., No. 3-79-12 (D.Minn. 1981) (order for summary judgment); Swift County Bank v. Siouxland Farmers Livestock Sales, Inc., No. 3-76-305 (D.Minn. 1980) (order for summary judgment); and United States v. Kost Security, Inc., No. 3-76-474 (D.Minn.1978) (order for summary judgment). Those cases, however, are barren of any analysis supporting that Court’s bald conclusions, and they provide us no help in resolving the issue in this case.

Southwestern correctly contends that to qualify as a “purchaser” under K.S.A. 84-9-103(l)(d) one need not give value for the collateral. Nevertheless, one does need to acquire some interest in the property. K.S.A. 84-1-201(32), (33); 1983 Kansas Comment (32). The flaw in Southwestern’s argument is that it fails to show what “interest” it acquired in the cattle, as that term is used in these Code sections. Defendant makes no showing it ever acquired title to the livestock in its own name. Southwestern does suggest it acquired an agister’s lien under K.S.A. 58-207 and 58-220, which lien qualifies as the requisite interest to raise defendant to the status of purchaser. But the primary requirement for priority of a statutory lienor is that he retain possession of the property rather than return possession or control to the owner; thus the right to a statutory lien is waived as to all property other than that which remains in actual possession of the party. Northeast Kansas Prod. Cred. Ass’n v. Ferbache, 236 Kan. 491, 494, 693 P.2d 1152 (1985). Any claim Southwestern may have had to a statutory agister’s lien was waived when it surrendered possession of the cattle to the buyer, and the lien cannot now be relied on as a right superior to an unperfected security interest.

At best, Southwestern acquired a mere possessory interest in the cattle by holding them for sale. The clear thrust of the Kansas UCC is that one must at least acquire a property interest in the collateral to qualify as a purchaser. Mere possession of goods is not a sufficient right to enable the possessor to grant another party a security interest therein. Pontchartrain State Bank v. Poulson, 684 F,2d 704, 707 (10th Cir.1982). Given that principle, it would be anomalous to now say mere possession is nevertheless a sufficient right to prevail over a prior security interest, albeit unperfected. This Court concludes, once again, that an auctioneer, sales agent, commission merchant or the like, which merely sell collateral on the debtors’ behalf while acquiring no property interest therein, do not qualify as “purchasers” of the collateral under the Kansas UCC. See Garden City Prod. Cred. Ass’n v. International Cattle Systems, 32 U.C.C.Rep.Serv. 1207, 1210 (D.Kan.1981); cf. Commercial Bank at Alma v. Hales, 281 Ark. 439, 665 S.W.2d 857, 38 U.C.C.Rep.Serv. 680 (1984) (identical conclusion reached under Arkansas UCC; auctioneer merely a selling agent, not a purchaser).

III. The Auction House as an Agent

Southwestern next argues that even if it does not qualify as a purchaser, as the debtors’ agent it is not liable for conversion because the ultimate buyer for value acquired the cattle free of plaintiff’s security interest under K.S.A. 84-9-301. For support defendant relies on United, States v. Hext, 444 F.2d 804 (5th Cir.1971). Hext held that selling agents are not liable as converters where the buyers take free of the prior security interest under UCC § 9-307(1). The Fifth Circuit Court of Appeals reached this conclusion relying on Restatement (Second) of Torts, § 233(1) (1965), which provides:

... one who as agent or servant of a third person disposes of a chattel to one not entitled to its immediate possession in consummation of a transaction negotiated by the agent or servant, is subject to liability for a conversion to another who, as against his principal or master, is entitled to the immediate possession of the chattel.

The ultimate buyers of the collateral in Hext acquired good title and were therefore entitled to immediate possession. The Court thus concluded the acts of the defendant agents in transferring the collateral to the buyers were not tortious as against the prior secured party. 444 F.2d at 814-816.

The difficulty with Southwestern’s argument in this case is that Kansas courts do not, at least in the commercial law context, employ the Restatement analysis underlying Hext. The Kansas UCC does not alter application of the common law rules governing liability for conversion. K.S.A. 84-1-103. Those common law rules are well established:

“... [A] factor or commission merchant who receives property from his principal, sells it under the latter’s instructions and pays him the proceeds of the sale is guilty of a conversion if his principal had no title thereto or right to sell the property, and generally the factor may not escape liability to the true owner for the value of the property by asserting he acted in good faith and in ignorance of his principal’s want of title____ The basis for the factor’s liability if he assists in a conversion, even though innocent, is the fact he stands in the shoes of his principal____”

North Central Kan. Prod. Cred. Ass’n v. Washington Sales Co., 223 Kan. 689, 698, 577 P.2d 35 (1978), quoting Devore v. McClure Livestock Commission Co., Inc., 207 Kan. 499, 503, 485 P.2d 1013 (1971) (emphasis added); see also First Nat’l Bank & Tr. Co. v. Atchison County Auction Co., 10 Kan.App.2d 382, 389, 699 P.2d 1032 (1985) (restating and applying rule, holding auction company liable for conversion because its principal, plaintiff’s debtor, was unauthorized to sell cattle). The intent required for conversion is satisfied by the use or disposition of goods belonging to another; knowledge or ignorance as to ownership of goals is irrelevant. Nelson v. Hy-Grade Const. & Materials, Inc., 215 Kan. 631, 527 P.2d 1059 (1974). Clearly, in deciding these questions, Kansas courts look not to the validity of the title acquired by the ultimate buyer for value, but only to the debtor’s authority to sell the collateral. See People’s Nat’l Bank & Trust Co. v. Excel Corp., 236 Kan. 687, 695 P.2d 444 (1985); North Cent. Kan. Prod. Cred. Ass’n v. Washington Sales Co., 223 Kan. 689, 577 P.2d 35 (1978); and First Nat’l Bank & Tr. Co. v. Atchison County Auction Co., 10 Kan.App.2d 382, 699 P.2d 1032 (1985).

Consistent with the goals of the UCC, the Kansas approach is preferable. This Court is not persuaded by Hext’s reliance on Restatement (Second) of Torts, § 233(1). Even assuming the Fifth Circuit was correct in equating the buyer’s entitlement to possession with the strength of title acquired after sale, the premise of § 233(1) is that the buyer acquires all, but only, the degree of title previously possessed by the seller; therefore, the strength of the buyer’s title is considered prima facie evidence of the validity of the sale. This premise is clear in the illustrations following § 233(1):

1. A, as agent for B, negotiates a purchase from C of goods stolen from D. A delivers the goods to B. A is subject to liability to D for conversion.
2. A, as agent for B, negotiates a sale to C of goods which B has stolen from D. A delivers the goods to C. A is subject to liability to D for conversion.

In contrast to these situations, under the unique provisions of the UCC a buyer may acquire bona fide title to property even when the sellers, as in this case, had none to convey. That simply does not mean, as defendant would have the Court believe, that the agent’s sale of the chattel was proper. The premise of § 233(1), that the ultimate buyer acquires only such title as the seller has to convey, is not always true under the UCC. Therefore, in these cases the buyer’s title may not be looked to as prima facie evidence of whether the agent’s sale was proper as against the sellers’ creditor. Section 233(1) does not govern the question of the agent’s liability for conversion.

The critical factor, rather, is the debtors’ authorization to sell. Unless otherwise provided by the UCC, a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. K.S.A. 84-9-201. The failure to perfect one’s security interest does not impair the secured party’s right to proceed against the debtors. Clark, The Law of Secured Transactions, HU 3.2[2], 9.4[1]. In this case defendant nowhere claims the Newmans, or Southwestern derivatively, were authorized to sell the cattle. Under the law allowing an unperfected secured creditor to proceed against its debtor for conversion, so may the plaintiff in this case proceed against the debtors’ agent, which merely “stands in the shoes of his principal” regardless of the rights acquired by the ultimate buyer for value.

In counselling against this holding, defendant warns against creating a “new type of strict liability” in these cases. It fails to recognize, however, conversion has always been a strict liability tort. See E.F. Hutton & Co., Inc. v. Helmer, et al, No. 79-1054 (D.Kan.1982) (order overruling motion for summary judgment); United States v. Gallatin Livestock Auction, Inc., 448 F.Supp. 616 (W.D.Mo.1978). The salutary purposes behind an auction company’s liability in these cases is well established. Although an auctioneer’s role may be a sympathetic one, the justification generally given is that he is in the best position to search the records for security agreements covering the cattle to be sold at auction, and that the imposition of liability provides greater protection for secured creditors. See United States v. Sommerville, 324 F.2d 712 (3d Cir.1964), cert. denied 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964); United States v. Equity Livestock Auction Market, 575 F.Supp. 1524 (E.D. Wis.1983); Annot., 96 A.L.R.2d 208 (1964). In the farm products rule of the UCC, the drafters and the state legislatures deemed it desirable to afford special protections to agricultural lenders. But even aside from the agricultural aspects of this case, to hold for the defendant would create an ill-conceived rule which, while prohibiting a debtor from selling property encumbered by an unperfected security interest, would allow the debtor’s agent to do so with virtual immunity. Such a rule would easily lend itself to abuse, fraud, and collusion, eviscerating the UCC protections afforded all secured lenders, agricultural or otherwise.

Accordingly, the Court holds an unperfected secured creditor may sue and recover damages for conversion from an auction company which was without authorization sold collateral encumbered by plaintiff’s security interest. See United States v. Friend’s Stockyard, Inc., 600 F.2d 9 (4th Cir.1979); cf. Mammoth Cave Prod. Cred. Ass’n v. Oldham, 569 S.W.2d 833 (Tenn.Ct.App.1977) (holding perfection unnecessary for PCA to assert its security interest against defendant sales warehouse in a conversion action).

IV. The Federal Packers and Stockyards Act

Lastly, Southwestern contends it cannot be held liable for conversion because it is bound to serve any and all customers under the dictates of the Federal Packers and Stockyards Act, 7 U.S.C. § 181 et seq. (1970). Defendant argues it is required by the Act to serve all customers without discrimination or difference, and it should therefore not be held liable for accepting and selling livestock subject to a security interest. The Court concludes, however, the Act was not intended to shield auction companies from liability for wrongful sales of livestock covered by security interests. Defendant’s argument is not original, and it has been rejected by virtually all of the numerous courts which have addressed it previously. See, e.g., United States v. Matthews, 244 F.2d 626 (9th Cir. 1957); United States v. Squires, 378 F.Supp. 798 (S.D.Ia.1974); Farmers State Bank v. W.M. Stewart, 454 S.W.2d 908 (Mo.1970); and First National Bank of Pipestone v. Siman, 67 S.D. 118, 289 N.W. 416 (1939).

IT IS ACCORDINGLY ORDERED this 9 day of September, 1985, that defendant’s motion for summary judgment is denied. Counsel for both parties shall appear in chambers in person or by .telephone on September 27, 1985, at 1:30 P.M., for a status conference, at which time the Court will set a date for pretrial conference.


author: EDWARD WEINFELD, District Judge.

text:
    David COLAN, Plaintiff, v. CONTINENTAL TELECOM, INC. and Management Assistance, Inc., Defendants.
    No. 83 Civ. 7304 (EW).
    United States District Court, S.D. of New York.
    Sept. 9, 1985.

      Milberg, Weiss, Bershad, Specthrie, & Lerach, New York City, Seymour A. Oliff, Chicago, Ill., for plaintiff; Lawrence Mil-berg, Jeremy Heisler, New York City, of counsel.
    Cahill, Gordon & Reindel, New York City, for defendant Continental Telecom, Inc.; Raymond L. Falls, Jr., Charles A. Gilman, Devereux Chatillon, New York City, of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

This is an action by plaintiff, a shareholder of Management Assistance Inc. (“MAI”) to recover on its behalf, pursuant to § 16(b) of the Securities Exchange Act of 1934, short swing profits from defendant Continental Telecom Inc. (“Continental”), allegedly derived from the purchase and sale of MAI stock within a six month period. Pri- or to the commencement of the action, plaintiff demanded that MAI take steps to recover the claimed profits, but it declined upon the ground that no violation of § 16(b) had occurred with respect to the transactions at issue, and accordingly plaintiff asserts further demand would be futile.

While the parties have submitted massive papers, documents and briefs relative to their respective contentions, the basic issue is whether a written option agreement executed on May 24, 1982, is what it purports to be, an option to MAI to purchase the shares owned by Continental or, as plaintiff contends, a guise or a sham to cover up the true nature of the transaction—an effective transfer equivalent to a sale by Continental of its shares to MAI, which, if such were the fact, was subject to the provisions of § 16(b).

In response to Continental’s motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss plaintiff’s first amended complaint, he cross moved for summary judgment. Upon the argument of the motions, it appeared there was so little substance to the plaintiff’s motion that it was denied, but the Court reserved decision on Continental’s motion, which we now address.

Except for plaintiff’s claim that the May 24, 1982 agreement was a sham, the basic facts are not in dispute. MAI has been engaged since 1961 in the business of selling and servicing information processing systems, and since 1971 engaged in the development and manufacture of its own proprietary computers and computer software, for, inter alia, business applications. Its products are marketed in the United States and more than thirty-five other countries and in the fiscal year preceding matters here at issue its revenue was $332,000,000.

Continental is a holding company with substantial interests in the telecommunications field. In recent years Continental has acquired control of several other companies with a view to diversifying its offerings of telecommunications goods and services, including an initial entry into the highly competitive field of data processing and data communications. In pursuit of this program of expansion, Continental, over a period of time, “in steps” purchased in the open market shares of MAI common stock, the last purchase occurring toward the end of April 1982, by which date it was the owner of approximately fifteen percent of all outstanding common stock of MAI and thus a statutory insider of MAI under § 16(a) of the Securities Exchange Act of 1934. With respect to these various purchases Continental filed with the Securities and Exchange Commission a Schedule 13-D statement that the shares were acquired for investment purposes. An amendment filed in April 1982 stated that it planned to acquire up to 25% of the outstanding shares of MAI common stock.

Not surprisingly, the situation was a matter of concern to MAI, its directors, officers and employees. While Continental stated its acquisitions were for investment purposes, MAI viewed them as an aggressive accumulation of shares “with the apparent intent to take control of MAI.” MAI’s Board of Directors considered that acquisition of control by Continental was contrary to the best interests of MAI, its stockholders, its executives and employees, and based upon an investigation of Continental and activities, advised Continental on May 4, 1982 that it was prepared “to do whatever is necessary and in whatever forum is appropriate, the Courts, the financial community, the press and the various regulatory authorities” to prevent a takeover and control of MAI by Continental.

MAI’s view that a takeover and control by Continental would be detrimental to MAI’s welfare and interests was based essentially on concerns about Continental’s lack of experience in the development of computer software and hardware for domestic and foreign markets; an adverse effect upon the morale of its existing staff of employees and officers; diminution of ability to attract new employees to MAI; foreclosure of new business ventures and financing arrangements; discouragement of beneficial investment in MAI by other companies which had manifested such an interest; as well as other adverse consequences that would follow in the wake of a takeover. Continental on its part sought to assure MAI directors that its purpose was well-intentioned and beneficially oriented— that is actions would result in substantial benefits to MAI shareholders and management, that it had never in more than 700 takeovers over a twenty year period fired any one as a result of an acquisition.

Between June 1981 and May 1982 officials of the two companies sought without success to explore possibilities for mutually beneficial relationships between the two companies. Beginning on or about May 4, 1982, the then strongly held and conflicting views of the parties were aired publicly by press releases and by an exchange of letters to directors and officials of each company in which criminatory and recriminatory charges were made. The dispute attracted the attention of the investment industry and financial news media. Notwithstanding their differences and hostile attitudes, officials of both companies still sought to reach an accommodation to resolve the matter. Continental rejected a proposal for a “standstill agreement” whereby it would be prevented from making purchases beyond twenty percent of MAI's outstanding stock over an eight year period. Similarly, during this period of charged controversy, a proposal whereby MAI offered to buy back all MAI shares owned by Continental was refused. Faced with the prospect of costly litigation and its uncertain outcome, the parties negotiated a settlement which resulted in the May 24, 1982 option agreement here at issue. It was the result of arms length negotiations carried on by the principal executives of the parties and their respective attorneys.

At the time of the execution of the agreement, Continental owned approximately 15.43% of the total issued and outstanding of MAI stock. MAI, in substance, among other matters, was given the right up to November 30, 1982 to purchase all the 1,288,300 shares of MAI common stock owned by Continental. The price paid for the option was $2,500,000 ($1.94 per share). This sum was not to be refunded in the event MAI did not exercise the option. The exercise price of the option was $21,880,000 ($16.98 per share). Continental agreed not to purchase any more MAI securities, solicit proxies or take any action to acquire control of MAI; to vote its shares in favor of MAI’s Board’s nominees and to vote upon any other matter in the same proportion as other holders of MAI stock; no proxy was given. Also, Continental agreed that if MAI exercised its option, it would not purchase MAI stock for three years from the closing date. On the last day of its right to exercise the option, November 30, 1982, MAI, pursuant to a provision in the option agreement, exercised its right upon a payment of $583,000, to extend the option period to April 30, 1983. This amount was not to be credited against the price of the stock in the event MAI exercised the option. Following the extension, MAI sought substantial revisions of the option agreement, including a two year extension of its obligation to pay in the event it exercised the option, as well as certain waivers which would give MAI additional time to decide whether or not to exercise its option. Continental refused these proposals and insisted upon adherence to the terms of the option agreement. Finally, on the very last day that the option could be exercised as extended, March 28, 1983, MAI gave notice that it exercised its option and purchased from Continental all its shares of common stock. The acquisition of the shares was well beyond the six month period of the last purchase of MAI stock by Continental in April 1982.

Initially, after MAI declined plaintiff’s request that it take action against Continental to recover the profits realized by it on the transaction, plaintiff instituted an action in the Supreme Court of the State of New York (which was consolidated with other actions) against MAI’s directors, wherein derivative and class action claims were asserted. Essentially, the companies charged the directors with breach of fiduciary duty upon allegations that they had acted out of self-interest to perpetuate their control over the corporations; had agreed to an excessive price for the purchase of the shares; had wasted corporate assets; and further alleged that MAI should have offered the same purchase terms to all of its stockholders that it had offered to Continental. The directors defended their action upon the ground that the option agreement was necessary to protect MAI’s interest and that the acquisition of the Continental shares served a valid business purpose. The New York State Supreme Court Justice dismissed the actions under New York’s business judgment rule, holding that plaintiffs had failed to make any showing that the director-defendants had made any profit at the expense of MAI. The court specifically noted that a purchase of stock can legitimately be made to remove the threat of a corporate raider whose goals would be detrimental to those of the corporation.

Plaintiff then repaired to this Court with the allegations already noted, upon which it seeks recovery from Continental.

This Court, of course, is aware of the stringency with which Rule 56 has been enforced by our Court of Appeals. However, the Rule should be enforced where justified, otherwise it is a dead letter. Litigants should not have to suffer the burden of extensive and ofttimes excessive and abusive pretrial discovery, vast legal fees, and the distraction of corporate officers from their assigned duties unless genuine issues of fact exist that preclude enforcement of the Rule. This Court is persuaded upon a close and intensive study of this record that other than the argumentative and conclusory matters urged by plaintiff, no genuine issue of fact exists and the defendant is entitled to summary judgment. A party cannot defeat a motion for summary judgment on conjectural allegations, but must set forth facts indicating that there is a genuine issue for trial—this the plaintiff has failed to do.

It cannot be disputed that the May 24, 1982 option agreement was entered into in a hostile atmosphere and essentially was based upon MAPs concern that its interests as a corporation and those of its shareholders would be adversely affected by Continental’s takeover; that Continental’s large holdings of MAI stock offered no benefits to MAI because Continental did not offer MAI any products, services, technology or managerial or financing ability needed by MAI or unobtainable elsewhere. So, too, it admits of no challenge that the negotiations were at arms length, with the parties represented by counsel; MAI had, in addition, the independent financial advice of two reputable investment banking firms that the option price was fair, along with the advice of outside legal counsel as to the legal aspects of the proposed transaction. Likewise, it is beyond dispute that the MAI directors acted in the firm belief that the option agreement was necessary to protect MAI and its shareholders against what was deemed predatory conduct by a corporate raider.

Notwithstanding, plaintiff claims the option was a facade to cover up a sale that took place on or prior to May 24. Plaintiff to support his contention relies upon the acknowledgment by the principal negotiators of each company, Continental’s Chairman of the Board, and MAI’s general counsel and a director, to the effect that prior to the execution of the agreement there had been discussions of a straight purchase of the shares. Continental’s chairman swears, however, that Continental did not agree to any purchase or sale transaction, either immediate or deferred. MAI’s counsel, in an affidavit submitted in the State Supreme Court action in support of its motion to dismiss the action, acknowledged that on May 21,1982 the parties reached an agreement in principle for the sale of the stock, which was followed by the execution of the agreement of May 24, 1982; accordingly, plaintiff contends that the parties had actually entered into an agreement for the sale of the shares on May 21 and that the written document was a sham to cover up the actual sale. This ipse dixit claim is a quantum leap that disregards the factual attendant circumstances that led to the execution of the agreement. Plaintiff’s conceptual theorizing seeks to displace the reality of events. Continental’s Chairman testified in his affidavit that Continental, advised of the provisions of § 16(b), refused to enter into any agreement for the sale of its MAI shares. Not a single evidentiary fact has been offered by plaintiff to support his claim. Continental was within its legal right to structure the transaction so as to avoid liability under § 16(b) and there is nothing improper in so structuring a transaction.

The history and the purpose of § 16(b) have been set forth at length in numerous rulings which need not be detailed here. It is a rigid rule of strict liability requiring the disgorging of profits derived by the unfair use of inside information. Its essential purpose is to discourage and curb speculative activities by fiduciaries and those with access to inside information. The statute is to be applied when it serves to implement its intended purpose. However, it is not to be applied woodenly or mechanistically to impede bona fide transactions which do not implicate the speculative abuses the statute was designed to prevent.

Thus, the basic issue is whether the transaction here at issue could lend itself to the abuse Congress sought to prevent—the realization of short swing profits based upon access to inside information, or, as the Supreme Court has phrased it, “whether the method used to ‘avoid’ liability is one permitted by the statute.”

In the instant case there is no claim, nor upon the record can any claim validly be made that Continental, despite its ownership of fifteen percent of MAI shares had access to inside information which it used or sought to use to make a profit within the proscribed statutory period. Its undisputed purpose was to gain control of MAI, which led to resistance by MAI officials because in their view, such control, if acquired, would have been detrimental to MAI’s other stockholders, its management and personnel. MAI, upon advice of specially retained investment experts and legal counsel, decided their interests could best be protected by an option, which if exercised was intended to assure that a hostile force had been removed. Even though there had been discussions during the negotiations of an outright sale of the shares, Continental had the legal right to structure the transaction with the intent to avoid liability under § 16(b). The established rule is that the “mere grant of an option to purchase is not a sale for the purposes of § 16(b); this occurs only when the optionee exercises the option.”

The record is barren of any factual matter to support a finding that either before or after the option was granted that Continental, despite its ownership of more than ten percent of the outstanding shares, enjoyed an insider’s opportunity to acquire information about MAI’s affairs. The record, as noted, emphatically points in the opposite direction, with MAI’s determined resistance to Continental’s alleged purpose to acquire control; its aggressive campaign to thwart Continental, which included a threat to expose alleged shortcomings of Continental in the conduct of its own business affairs. In light of these concerns, which foreclosed Continental from access to confidential and inside information, the negotiation and execution of the option agreement does not “smack of insider trading.”

Neither is there any basis to support plaintiff’s conclusory allegation that the sale took place in advance of the exercise of the option on the last day it could be exercised. The price paid for the option was based upon the professional judgment of two recognized investment firms who reached independent judgment that it was fair and reasonable. It was not so large in relation to the purchase price that its exercise was practically compelled, even considering MAI’s avowed purpose to rid itself of a potentially troublesome stockholder. Indeed, that MAI would exercise its option was far from a certainty. It not only took advantage of an extension provided for by the agreement, but sought, without success, to obtain an extension of payment in the event it did decide to exercise the option. MAI at all times was free to decide for itself whether or not to exercise the option and Continental had no control over MAI’s decision. Continental had no representative on MAI’s Board of Directors or was any of its officials involved in the executive management of MAI.

Plaintiff’s claim that the option was a sham, in effect a fraud “accompanied by a wink of the eye” does not wash. Here he relies upon the provision in the option agreement whereby Continental agreed not to purchase any more MAI securities, solicit proxies or to take any action to control MAI and to vote its shares in favor of MAI’s Board of Nominees, and in the event MAI exercised its option Continental would not purchase MAI stock for three years from the closing date. By no means did these provisions give Continental insider information to permit speculative abuse by Continental within a six months period. This was the part of the protection that MAI paid for in resisting Continental’s attempted takeover; it bought its peace for a period so that it could carry on, without disruption, its normal corporate functions. To adopt plaintiffs theory would require, if the impact of Rule 16(a) is to be avoided, that the parties continue their internecine activities with its destructive potentialities upon the welfare of MAI for a period of six months from the time of the last purchase of shares by Continental. Taking full account of the prophylactic purposes of Rule 16(a), it does not require such irrational conduct.

The factual situation here is markedly different from Bershad v. McDonough, upon which plaintiff relies. There the optioner, who had a double insider status as a director and holder of more than ten percent of the stock, not only gave the optionee an irrevocable proxy to vote the shares for the life of the agreement, the optioner and one of his associate directors immediately resigned as directors of the optionee and were replaced by officers of the optionee, and the stock which was the subject of the transaction was placed in escrow, all of which was found to justify that it was a “wink of the eye” transaction. Indeed, Mr. Justice Stewart, in distinguishing the Bershad case from the Occidental Petroleum case, observed that there “the optioner did not surrender practically all emoluments of ownership by executing the option. Nor did any other special circumstances indicate that the parties understood and intended that the option was in fact a sale.”

In sum, the Court concludes that the option agreement was valid, is what it purports to be and was not a sham to cover up a sale of the consolidated shares and thus was not subject to the provisions of section 16(b).

The defendants’ motion for summary judgment is granted. Judgment may be entered accordingly.

      . 15 U.S.C. § 78p(b) (1982) provides in pertinent part that: "For the purpose of preventing the unfair use of information which may have been obtained by [any] beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) within any period of less than six months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request.”

      . Both parties submitted affidavits and exhibits in support of and opposition to their respective motions and clearly considered them to be motions for summary judgment as authorized%nder Fed.R.Civ.P. 12(b)(6).

      . 15 U.S.C. § 78p(a) (1982).

      . Letter from Raymond Kurshan to Charles Wohlstetter, May 4, 1982, Exhibit B to Affidavit of Charles Wohlstetter.

      . See Affidavit of Charles Wohlstetter at 4; Affidavit of Robert W. Berend at 18-19 & n. 15.

      . The exercise price to be paid was $18.25 per share x 1,288,300 shares = $23,511,475, less $2,500,000, the price paid for the option, plus interest at 8% per annum on the exercise price for the approximately six months between the date of agreement in principle and the exercise date.

      . Prior to the execution of the May 24 option agreement, there were preliminary discussions of the possibility of a straight purchase by MAI of the shares held by Continental, but no agreement was reached as to any purchase or sale, immediate or deferred.

      . Lewis et al. v. Kurshan et al., New York Law Journal, December 1, 1983.

      . See e.g., Gary Plastic Packaging Corp. v. Merrill, Lynch, 756 F.2d 230 (2d Cir.1985); Heyman v. Commerce & Industry Ins. Co., 524 F.2d 1317 (2d Cir.1975); Miller v. General Outdoor Advertising, 337 F.2d 944 (2d Cir.1964).

      . The burdens of excessive discovery can be particularly acute in the context of actions to enforce federal securities laws; indeed, the Supreme Court has expressed sharp concern over the “possible abuse of the liberal discovery provisions of the Federal Rules of Civil Procedure” in "nuisance or ‘strike’ suits” under the securities statutes. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975).

      . Cf. Applegate v. Top Assoc., 425 F.2d 92, 97 (2d Cir.1970); see also Samuels v. Eleanor Beeher, B.V., 500 F.Supp. 1357, 1364-65 (S.D.N.Y. 1980), aff’d, 661 F.2d 907 (2d Cir.1981); Steinberg v. Carey, 439 F.Supp. 1233, 1241 (S.D.N.Y. 1977); Miller v. Schweickart, 413 F.Supp. 1062, 1069 (S.D.N.Y.1976); Schwartz v. BMI, 180 F.Supp. 322, 325 (S.D.N.Y.1959); Morgan v. Sylvester, 125 F.Supp. 380, 389 (S.D.N.Y.1954), aff'd, 220 F.2d 758 (2d Cir.), cert. denied, 350 U.S. 867, 76 S.Ct. 112, 100 L.Ed. 768 (1955).

      . Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972).

      . See Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 601, 93 S.Ct. 1736, 1748, 36 L.Ed.2d 503 (1973); Blau v. Lamb, 363 F.2d 507 (2d Cir.1966), cert. denied, 385 U.S. 1002, 87 S.Ct. 707, 17 L.Ed.2d 542 (1967); Blau v. Max Factor & Co., 342 F.2d 304 (9th Cir.), cert. denied, 382 U.S. 892, 86 S.Ct. 180, 15 L.Ed.2d 150 (1965); Adler v. Klawans, 267 F.2d 840 (2d Cir. 1959); Smolowe v. Delendo Corp., 136 F.2d 231 (2d Cir.), cert. denied, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446 (1943).

      . See Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 424, 92 S.Ct. 596, 600, 30 L.Ed.2d 575 (1972).

      . See Abrams v. Occidental Petroleum Corp., 450 F.2d 157, 159, 162 (2d Cir. 1971) (citing Roberts v. Eaton, 212 F.2d 82 (2d Cir.), cert. denied, 348 U.S. 827, 75 S.Ct. 44, 99 L.Ed. 652 (1954), aff'd, 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973).

      . Kern County Land Co. v. Occidental Corp., 411 U.S. 582, 584, 594, 93 S.Ct. 1736, 1739, 1744, 36 L.Ed.2d 503 (1973), aff’g Abrams v. Occidental Petroleum Corp., 450 F.2d 157 (2d Cir.1971).

      . Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422, 92 S.Ct. 596, 599, 30 L.Ed.2d 575 (1972).

      . Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 601, 93 S.Ct. 1736, 1748, 36 L.Ed.2d 503 (1973), aff'g Abrams v. Occidental Petroleum Corp., 450 F.2d 157, 159, 164 (2d Cir.1971); Silverman v. Landa, 306 F.2d 422 (2d Cir.1962).

      . Kern County, 411 U.S. at 601, 93 S.Ct. at 1748.

      . Id. at 603, 93 S.Ct. at 1749.

      . Abrams v. Occidental Petroleum Corp., 450 F.2d 157, 165 (2d Cir.1971), aff’d, 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973).

      . 428 F.2d 693 (7th Cir.1970), cert. denied, 400 U.S. 992, 91 S.Ct. 458, 27 L.Ed.2d 440 (1971).

      . Kern County, 411 U.S. at 604, 93 S.Ct. at 1749.


author: YOUNG, District Judge.

text:
    RARE BLUE MUSIC, INC., et al., Plaintiffs, v. Arthur M. GUTTADAURO, Defendant.
    Civ. A. No. 84-829-Y.
    United States District Court, D. Massachusetts.
    Sept. 10, 1985.
    As Amended Sept. 11, 1985.

      Stephen S. Young, Sherburne, Powers & Needham, Boston, Mass., for plaintiffs.
    Robert Derian, Westwood, Mass., for defendant.
   MEMORANDUM AND ORDER

YOUNG, District Judge.

This is an action for copyright infringement, with jurisdiction based on 28 U.S.C. § 1338(a). The plaintiffs are music publishers and all are members of the American Society of Composers, Authors and Publishers (“ASCAP”). Through ASCAP, the plaintiffs license copyrighted material to individuals and businesses wishing to perform the material in public. The plaintiffs brought this action against the defendant, Arthur Guttadauro, for monetary and injunctive relief based on five counts of alleged infringement.

The undisputed facts show that Guttadauro is the owner and operator of an establishment in Chelsea, Massachusetts, known as King Arthur’s. As part of the regularly provided entertainment at King Arthur’s, musical compositions are played on a jukebox which is neither coin-operated nor accessible to the public. On the night of September 16-17, 1983, five of the plaintiffs’ copyrighted songs were played publicly without authorization from ASCAP.

On the basis of these undisputed facts, the plaintiffs moved for summary judgment. An oral hearing on that motion was held on June 12, 1985, at which time Guttadauro conceded liability. Therefore, the only issue before the court is the appropriate relief to be granted.

I.

The Copyright Act (“the Act”) authorizes the granting of injunctive relief to the prevailing party in an infringement action. 17 U.S.C. § 502(a). An injunction is appropriate where there is a “substantial likelihood of further infringement of plaintiffs’ copyrights.” Milene Music, Inc. v. Gotauco, 551 F.Supp. 1288, 1295 (D.R.I. 1982). The Act further provides that the prevailing party may seek damages, in the form of actual damages such as lost revenue, 17 U.S.C. § 504(b), or alternatively, in the form of statutory “in lieu” damages ranging from $250 to $10,000 for each incident of infringement. 17 U.S.C. § 504(c)(1). The plaintiffs in this ease seek relief in the form of statutory damages under § 504(c)(1), in addition to an injunction.

The determination of statutory damages under 17 U.S.C. § 504(c)(1) is left solely to the discretion of the trial court, and review of the court’s decision on this issue is “extremely narrow.” Morley Music Co. v. Dick Stacey’s Plaza Motel, Inc., 725 F.2d 1, 3 (1st Cir.1983); see Douglas v. Cunningham, 294 U.S. 207, 210, 55 S.Ct. 365, 366, 79 L.Ed. 862 (1935). In Morley Music, the Court of Appeals described the trial court’s task as follows:

[A] trial court is not left completely to its own devices in determining damages. Although there need not be the kind of hearing required if factual damages were the issue, there must, we think, be either some hearing or sufficient affidavits to give the trial judge an adequate reference base for his judgment.

725 F.2d at 3 (citations omitted). In this case, the parties have submitted numerous affidavits and supporting documents to guide the Court in its determination of damages. In addition, all parties were represented at an oral hearing on this issue.

Among the factors to be considered in awarding statutory damages are (1) expenses saved and profits reaped by defendants in connection with the infringement; (2) revenues lost by the plaintiffs; and (3) whether the infringement was willful' and knowing, or whether it was accidental and innocent. Milene Music, Inc. v. Gotauco, 551 F.Supp. 1288, 1296 (D.R.I.1982); Boz Skaggs Music v. KND Corp., 491 F.Supp. 908, 914 (D.Conn.1980).

II.

The plaintiffs have urged the Court to award $1,000 per infringement, for a total of $5,000 in statutory damages. In support of that request, they have submitted affidavits from ASCAP’s East Coast Division Manager, Kenneth Gilman, showing that Guttadauro has been infringing the copyrights of ASCAP members since 1978. According to Gilman, ASCAP representatives have sent at least 18 letters and other correspondence to Guttadauro since 1978, and have also had at least nine telephone conversations and personal visits with him. Despite these numerous contacts, Guttadauro has refused.to seek a license for King Arthur’s. Moreover, as of May 2, 1985, when Gilman executed his supplemental affidavit, Guttadauro still had not sought a license even though he apparently continued to provide musical entertainment for his patrons. Gilman Supplemental Affidavit flfl 5-11.

The plaintiffs have submitted further evidence that if Guttadauro had been properly licensed from 1978 through July 1, 1985, the estimated license fees which it would have paid to ASCAP amount to $4,735. In addition, ASCAP paid $256.64 to obtain the investigative services performed on September 16, 1983 to gather the evidence of infringement upon which this action is based. Gilman Affidavit of February 7, 1985, flfl 5-7.

Guttadauro does not dispute the basic facts set forth by the plaintiffs. However, he does dispute the contention that he knowingly and deliberately disregarded the plaintiffs’ rights under the Act. Guttadauro has submitted affidavits stating that the jukebox at issue in this ease is owned by Cigarette Service Company (“Cigarette Service”) of Cambridge, Massachusetts, with whom he has a service contract. Cigarette Service owns the records installed in the jukebox and provides general servicing of the machine, including the changing of records. Guttadauro Affidavit flfl 6-7; LaSala Affidavit flfl 3-5. According to an affidavit by the President of Cigarette Service, Charles LaSala, Cigarette Service “pays an annual fee for the jukebox machine.” LaSala stated that Guttadauro contacted him “some months back” regarding the jukebox arrangements, at which time he told Guttadauro that Cigarette Service was properly licensed for the jukebox and paid royalty fees for the records provided to King Arthur’s. LaSala further informed Guttadauro that ASCAP had not filed any complaint with Cigarette Service or made any other inquiry about the use of the jukebox or the records supplied to it. LaSala Affidavit ¶¶ 6-7.

Guttadauro relies on his arrangement with Cigarette Service to suggest that he acted in good faith with respect to ASCAP. Although he concedes that ASCAP made numerous attempts to contact him “by letter, by phone and in person,” he states that he “refused to do business with ASCAP” because of his contract with Cigarette Service. Guttadauro Affidavit ¶¶ 10-13. He sums up his argument in one paragraph of his affidavit:

ASCAP and it’s [sic] representatives just became one more of these types of annoyances to me. My position throughout has been that Cigarette Service Company is properly licensed and pays a fee directly to ASCAP. I had checked with Cigarette Service Company about this when ASCAP first made contact with me. Once I became assured that Cigarette Service Company was properly licensed I felt no further concern. My position was that I did not have to deal directly with ASCAP. I did not want to purchase records or obtain any licenses from ASCAP separate than from my business dealings with Cigarette Service Company.

Guttadauro Affidavit ¶ 13.

Guttadauro’s arrangement with Cigarette Service did not, as a legal matter, affect his responsibility to pay license fees for the playing of ASCAP music. See 17 U.S.C. § 116. Guttadauro has implicitly conceded this point by admitting liability. Nonetheless, he argues that he should be held liable only for minimal damages because he was simply mistaken about the applicable law.

This argument would have more force if Guttadauro had not continually “refused to do business with ASCAP” over the course of a seven-year period. Despite exhaustive attempts by ASCAP representatives to persuade him to pay license fees, Guttadauro ignored such requests. There is no evidence that he sought legal advice on this matter before the pending action was filed. Instead, he apparently relied solely on a representation by Cigarette Service that it, as owner of the jukebox, was properly licensed with ASCAP. Without inquiring further as to his own obligations as proprietor, Guttadauro resisted all efforts by AS-CAP to reach an amicable understanding.

Under these circumstances, the Court finds that the plaintiffs’ request for an award of $1,000 per infringement is just and equitable. In light of the undisputed evidence that the estimated ASCAP license fees over the last seven years, had Guttadauro paid them, would have been $4,735, a total award of $5,000 is more than reasonable. See Morley Music Co. v. Dick Stacey’s Plaza Motel, Inc., 725 F.2d 1, 3-4 (1st Cir.1983) (affirming award of $4,800 where estimated total loss of license fees to AS-CAP was $4,500).

With respect to the plaintiffs’ request for attorneys’ fees, it is again left to the sound discretion of the court to determine whether or not attorneys’ fees should be awarded, and if so, the amount of such fees. Milene Music, Inc. v. Gotauco, 551 F.Supp. 1288, 1297 (D.R.I.1982); see 17 U.S.C. § 505. For the reasons discussed above, this Court concludes that Guttadauro’s conduct was sufficiently “blameworthy” to justify an award of attorneys’ fees. See Milene Music, supra, 551 F.Supp. at 1297. The plaintiffs have requested fees totalling $4,500, and have filed an affidavit of counsel and detailed time records in support of that request. After reviewing the record, the Court finds that, in light of the relative simplicity of this action and its legal framework, a fee in the amount of $2,800 is fair and reasonable. Id. at 1298 (fee of $2,250 approved as “eminently fair” in a similar case in 1982). The plaintiffs are further entitled to recover costs. Id. at 1297 (“In virtually all reported cases under the Act, costs have been awarded to the victor without discussion.”).

Order

In accordance with the determinations made above, the plaintiffs’ motion for summary judgment is ALLOWED.

It is further ORDERED:

1. That the plaintiffs recover of and from the defendant Arthur M. Guttadauro the sum of $5,000 statutory damages, plus attorneys’ fees in the amount of $2,800, for a total recovery of $7,800, plus costs.

2. That the defendant Arthur M. Guttadauro and all persons acting under the direction, control, permission or authority of the defendant are hereby enjoined and restrained from further infringement of the plaintiffs’ copyrights in the musical compositions “Heart of Glass,” “I Will Survive,” “The Other Woman,” “Urgent,” and “Shame On The Moon.”


author: KANE, District Judge.

text:
    Andrew R. SANDS, Plaintiff, v. VICTOR EQUIPMENT COMPANY, a Texas Corporation, Defendant.
    Civ. A. No. 85-K-1537.
    United States District Court, D. Colorado.
    Sept. 10, 1985.
    Richard L. Shearer, Calkins, Kramer, Grimshaw & Harring, Denver, Colo., for plaintiff.

      Britton White, and Wendy C. Fleming, Holland & Hart, Denver, Colo., for defendant.
   ORDER

KANE, District Judge.

Andrew Sands, a resident of Colorado, filed this diversity action against Victor Equipment Company, a Texas corporation. Defendant has moved to dismiss for lack of personal jurisdiction. It argues that personal jurisdiction is not authorized by Colorado’s long-arm statute and violates due process.

Sands was injured when an acetylene torch exploded as he attempted to light it. The acetylene torch was purchased by his employer, a Montana corporation. The explosion, and resultant injuries to Sands, occurred in Oklahoma.

Victor has no offices, no manufacturing facilities, no certificate of authority, no agent, and no bank accounts in Colorado. It does maintain one sales representative for a four-state region, and that sales agent resides in Colorado. Some of its products are also distributed in Colorado, but plaintiff does not set forth which products. Several authorized distributors of Victor welding equipment are listed in one small advertisement in the Denver Yellow Pages. The sole question before me is whether this court may exert personal jurisdiction over Victor based on these alleged contacts.

I.

A plaintiff need only make a prima facie showing of jurisdiction to withstand defendant’s motion to dismiss. Pioneer Astro Industries, Inc. v. District Court, 193 Colo. 409, 566 P.2d 1067 (1977). It is appropriate, however, in determining whether a prima facie showing has been made, that the court consider the allegations in the complaint, any affidavits submitted, and evidence presented at the hearing on the motion to dismiss. Panos Investment Company v. District Court, 662 P.2d 180 (Colo.1983); Fleet Leasing, Inc. v. District Court, 649 P.2d 1074 (Colo.1982).

II.

In diversity cases, the federal court’s jurisdiction is coextensive with the state court’s. Ruggieri v. General Well Service, Inc., 535 F.Supp. 525 (D.Colo. 1982). A federal court must decide this jurisdictional question based on case law interpreting Colorado’s long arm statute, C.R.S. § 13-l-124(l)(a), which provides:

Engaging in any act enumerated in this section by any person, whether or not a resident of the state of Colorado, either in person or by an agent, submits such person, and, if a natural person his personal representative, to the jurisdiction of the courts of this state concerning any cause of action arising from:
(a) The transaction of any business within this state;
(b) The commission of a tortious act within this state;
(c) The ownership, use, or possession of any real property situated in this state; or
(d) Contracting to insure any person, property, or risk residing or located within this state at the time of contracting.

(Emphasis added.) The Supreme Court of Colorado has held that C.R.S. § 13-1-124 is intended to allow Colorado courts to assert jurisdiction to the maximum extent permissible under due process. See, e.g., Le Manufacture Francaise des Pneumatiques Michelin v. District Court, Colorado, 620 P.2d 1040, 1044 (1980).

III.

Since personal jurisdiction is generally determined on a case-by-case basis, Ruggieri v. General Well Service, Inc., 535 F.Supp. 525, 531 (1982), the facts in this case will determine whether jurisdiction is appropriate. Significantly, this case differs from many personal jurisdiction cases insofar as the cause of action arises neither in Colorado nor from the transaction of any business within Colorado. Defendant’s contacts with Colorado are unrelated to plaintiff’s injury in Oklahoma. In Fidelity and Casualty Company of New York v. Philadelphia Resins Corporation, 766 F.2d 440 (10th Cir.1985), the Tenth Circuit held in personam jurisdiction over a nonresident defendant did not exist because “the only contact [defendant] PRC has with Utah which is related to the cause of action is the fact that a PRC product happened to fail and cause damage in the State.” Id. at 447. The court noted that “PRC also has contacts in Utah (which we assume reach the state) and sales of other products there, but these unrelated contacts are likewise insufficient to support the exercise of in personam jurisdiction.” Id. In a footnote, the court noted that Utah’s long-arm statute authorized jurisdiction on claims “arising from” certain activities of defendant, and that it is doubtful that the unrelated contacts are even relevant to the jurisdictional inquiry. Id., note 3. The Tenth Circuit did not decide that question, however, and I also decline to do so.

The Tenth Circuit followed the rule enunciated by the Supreme Court that a state is not compelled either to take or decline jurisdiction over a corporation when a cause of action does not arise out of the corporation’s activities in the forum state. Perkins v. Benguet Consolidated Mining Company, 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485 (1952). Contacts which are unrelated to the cause of action must be significantly more substantial than contacts related to the cause of action. A court may still take jurisdiction, but the quality and nature of defendant’s activities must indicate that such jurisdiction is reasonable and fair.

IV.

Colorado courts have developed their own tests for determining the existence of in personam jurisdiction. Colorado “consistently has distinguished between cases in which jurisdiction is sought based on a single isolated incident, and cases in which jurisdiction is predicated on allegations of continuous, substantial conduct in the forum state.” Behagen v. Amateur Basketball Association of U.S.A., 744 F.2d 731, 734 (10th Cir.1984, cert. denied, — U.S. —, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985). Where a single act or a minimum contact is the basis of jurisdiction, Colorado has adopted a three-pronged test in determining whether the activity of the non-resident falls within the limits of in-personam jurisdiction:

First, the defendant must purposely avail himself of the privilege of acting in the forum state or of causing important consequences in that state. Second, the cause of action must arise from the consequences in the forum state of the defendant’s activities. Finally, the activities of the defendant or the consequences of those activities must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.” Van Schaack v. District Court, 189 Colo. 145, 147, 538 P.2d 425, 426 (1975), quoting White Lumber Sales, Inc. v. Sulmonetti, 252 Or. 121, 448 P.2d 571 (1968).

Waterval, 620 P.2d at 9. On the other hand, where “there are substantial continuous contacts with the forum state, jurisdiction may be found even when the cause of action does not arise out of the forum related activity.” Id., quoting Tucker v. Vista Financial Corp., 192 Colo. 440, 443, 560 P.2d 453, 456 (1976). As summarized in 2 J. Moore, Federal Practice, ¶ 4.25[5] (1980):

If there are substantial contacts with the state, for example a substantial and continuing business, and if the cause of action arises out of the business done in the state, jurisdiction will be sustained. If there are substantial contacts with the state, but the cause of action does not arise out of these contacts, jurisdiction may be sustained. If there is a minimum of contacts, and the cause of action arises out of the contacts, it will normally be fair and reasonable to sustain jurisdiction. But if there is a minimum of contacts, and the cause of action does not arise out of the contacts, there will normally be no basis of jurisdiction, since it is difficult to establish the factors necessary to meet the fair and reasonable test.

Applying Perkins, Colorado courts have generally taken jurisdiction in cases where the cause of action does not arise out of the forum related activity if the defendant has substantial, continuous contacts with the forum state. Behagen v. Amateur Basketball Association of U.S.A., 744, F.2d 731 (10th Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985); Waterval v. District Court, 620 P.2d 5 (Colo.1980); Le Manufacture Francaise v. District Court, 620 P.2d 1040 (Colo.1980) (en banc). I must decide, therefore, whether defendant’s activities in Colorado are of a “continuous and substantial” nature. If I adopt plaintiff's assertion that defendant’s contacts with Colorado constitute continuous and substantial contacts, the Van Shaack test need not be applied, and jurisdiction may be sustained regardless of whether the cause of action did not arise from defendant’s activities. If, on the other hand, the defendant has minimal connection with the forum state, and the litigation over plaintiff’s injury is totally unrelated to the forum state or to defendant’s minimal activities therein, it will be unreasonable to assert that jurisdiction is reasonable and just.

Victor distributes some of its products in Colorado, and employs one sales representative in the region. The question, though, is whether such distribution is “continuous and substantial” and indicates that Victor purposely availed itself of Colorado law.

V.

In answering this question, I must be guided by the general “minimum contacts” principle enunciated in U.S. Supreme Court cases, including Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 104 S.Ct. 1868,. 80 L.Ed.2d 404 (1984). In Helicopteros, a Colombian corporation had entered into a contract in Texas to provide helicopter transportation to the respondent, a resident of Texas. The Colombian corporation had no place of business in Texas, and had never been licensed to do business there. It merely sent its chief executive officer to Houston to negotiate the contract. One of the helicopters subsequently crashed in Peru, and decedents’ survivors brought a wrongful death action in Texas. The Supreme Court held that the foreign corporation’s contacts with the forum state were insufficient to support assertion of in personam jurisdiction. Its activities simply did not constitute contact of a “continuous and systematic” nature.

The Supreme Court in Helicopteros further held that the cause of action did not rise out of or relate to the corporation’s activities within the forum state. “[Mjere purchases, even if occurring at regular intervals, are not enough to warrant a State’s assertion of in personam jurisdiction over a nonresident corporation in a causé of action not related to those purchase transactions.” at —, 104 S.Ct. at 1874, 80 L.Ed.2d at 413. While I could distinguish the facts before us from Helicopteros by pointing to the Yellow Pages ad as a deliberate effort of Victor to serve the Colorado market, I find much more significant the fact that there is no connection or relationship between plaintiff’s underlying cause of action and Victor’s contacts with Colorado. In Helicopteros, the Supreme Court did not find significant contacts even though the helicopter service out of which the cause of action arose was contracted for in Texas. Certainly plaintiff’s injury in Oklahoma is more unrelated to Victor’s activities in Colorado than decedents’ deaths were to the corporation’s activities in Texas in Helicopteros.

I must also distinguish Vandermee v. District Court, 164 Colo. 117, 433 P.2d 335 (1967), which, at first reading, appears to require that I take jurisdiction. In Vandermee, defendant's distributor handled all phases of defendant’s sales in the state. The Colorado Supreme Court held that this constituted minimal contact in Colorado because it set up channels of sales promotion and distribution for the purpose of selling its products in Colorado. This seems persuasive authority until I note that the accident in Vandermee took place in Colorado. Thus the minimum contacts requirement in Vandermee was satisfied by the existence of a distribution system. As explained above, supra page 1534, Perkins clearly suggests a court should refuse to take jurisdiction when the cause of action does not arise out of the corporation’s activities in the forum state unless more significant contacts are found. I find that the mere existence of some unspecified distribution system in a state, where the cause of action is unrelated to such distribution system, does not satisfy the minimum contacts test. The advertisement in the Yellow Pages does not help plaintiff. Plaintiff has failed to set forth contacts of a continuous and substantial nature. The second prong of the Van Shaack test cannot be met as there is no relationship between the advertisement or the presence of a couple of distributors in Colorado and the accident in Oklahoma. The facts, therefore, do not warrant this court’s jurisdiction.

Further, I do not find such a decision inconsistent with the mandate of WorldWide Volkswagen Corporation v. Wood-son, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), in which the Supreme Court held:

[I]f the sale of a product of a manufacturer or distributor such as Audi or Volkswagen is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others.

Id. at 297-98, 100 S.Ct. at 567 (emphasis added). In the case before us, plaintiff never alleges that defendant’s defective merchandise was the source of injury in Colorado.

I am now left only with considerations of fairness to the plaintiff, a Colorado resident. If this case is dismissed, he will be forced to litigate in another forum, a considerable distance from Colorado. As the plaintiff is not a corporation, such a result would place a considerable burden, financially as well as in terms of time involved, on him. I do not find in this case, however, that fundamental fairness warrants this court’s assumption of jurisdiction in a case so totally unrelated to Colorado. Plaintiff’s residence alone cannot form the basis for this court to assert in personam jurisdiction over the defendant. As I have explained at length above, the contacts between Victor and Colorado do not rise to the level of continuous and substantial contacts which justify this court in asserting in personam jurisdiction over Victor.

It is therefore ORDERED that this complaint and civil action are dismissed for lack of in personam jurisdiction over defendant. Each party is to bear his/its own costs.

      . Of course, if the cause of action arises from a single transaction in the forum state, jurisdiction may be based on that single transaction. McGee v. International Life Insurance Company, 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957).

      . The dissent argues that Helicol purposefully availed itself of the benefits and obligations of the forum, and that there was a direct relationship between the underlying cause of action and Helicol’s contacts with the forum state.


author: KRAM, District Judge.

text:
    ROUNDBALL ENTERPRISES, INC., Plaintiff, v. Michael Ray RICHARDSON and Professional Sports Management, Inc., Defendants.
    No. 82 Civ. 7000 (SWK).
    United States District Court, S.D. New York.
    Sept. 11, 1985.
    Don Cronson, New York City, for plaintiff.
    G. Patrick Healy, Tacoma, Wash., for defendant Professional Sports Management, Inc.
   MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

The above-captioned action is before this Court upon the motion of defendant Professional Sports Management, Inc. (“PSM”) to dismiss the complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. For the reasons stated below, defendant’s motion is denied.

BACKGROUND

Plaintiff Roundball Enterprises, Inc. (“Roundball”) commenced this action against Richardson and G. Patrick Healy by filing the complaint herein on October 21, 1982. Richardson is a well-known professional basketball player. Roundball alleges that it was Richardson’s exclusive agent, and asserted claims against Richardson for fees allegedly owing, and against Healy, the president of PSM, Richardson’s current agent, for tortious interference with its contractual relationship with Richardson.

Healy moved for dismissal of the complaint as against him for want of in person-am jurisdiction. That motion was granted in an opinion dated March 31, 1983, on the grounds that any contact Healy had with New York was in a representative capacity for PSM, not in his individual capacity.

Roundball moved for leave to file an amended complaint naming PSM as a defendant in the action on April 13, 1983. On May 20, 1983, Roundball’s motion for leave to file an amended complaint was granted. Roundball served and filed an amended complaint asserting a cause of action against PSM for tortious interference with its contractual relationship with Richardson. Thereafter, PSM filed this motion to dismiss the complaint on a variety of grounds, the primary one seeming to claim lack of personal jurisdiction.

This action arises out of an alleged contract between Roundball and Richardson entered into on May 5, 1980, whereby Roundball was to serve as Richardson’s exclusive representative for a period of four years. By the terms of this agreement, Roundball was to represent Richardson in employment contract negotiations and was to provide overall financial and business management services. Pursuant to that agreement, Don Cronson, the president of Roundball, acquired a power-of-attorney with respect to a cash management account maintained in Richardson’s name by Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”) at its office at 165 Broadway in Manhattan.

PSM, through Healy, alleges that on February 8, 1982, Richardson signed an agreement in Seattle, Washington to retain PSM as his exclusive business representative and manager. It is alleged that, in order to cajole Richardson into entering this contract, Healy called and wrote to Richardson in New York often. On February 9, 1982, a letter allegedly signed by Richardson was sent to Cronson purportedly terminating Richardson’s contract with Roundball. Cronson alleges that thereafter he had several conversations with Richardson during which Richardson refused to confirm that he sent the letter or to insist upon compliance therewith. Cronson alleges that one month later, Healy was in New York to meet with Richardson to continue his efforts to persuade him to leave Roundball for PSM. Healy allegedly spoke with Richardson at length in New York during this visit. Healy also allegedly attended a Knick game at Madison Square Garden with one of Richardson’s friends to enlist his assistance in persuading Richardson to disavow Roundball. Healy also persisted in writing and calling both Cronson and Richardson in New York.

Plaintiff alleges that despite Healy’s efforts another contract was executed between Roundball and Richardson on May 27,1982, and that on August 20,1982 Richardson wrote a letter to Healy reaffirming his relationship with Roundball and stating that Roundball would continue to act as his exclusive agent.

One month later, Healy apparently again came to New York. This time, Healy and Richardson met with Kevin Ward, an account executive for Merrill Lynch at its New York office. Ward indicated that “Richardson, at Healy’s urging” instructed Ward that the power-of-attorney in favor of Roundball and/or Cronson had been revoked and that all future instructions would come from Healy. During this period, Healy was also apparently communicating with Richardson’s New York employer, purporting to be Richardson’s exclusive agent and attempting to renegotiate his employment contract.

DISCUSSION

PSM moves to dismiss this claim on a variety of grounds, only one of which merits discussion. PSM argues that it is not subject to suit in this Court, apparently because this Court purportedly lacks personal jurisdiction over it. At the outset, the Court should set out some basic parameters that apply to questions of in person-am jurisdiction.

State law dictates whether this Court has personal jurisdiction over a party in a diversity action. Arrowsmith v. United Press International, 320 F.2d 219 (2d Cir.1963) (en banc). The burden is on the plaintiff to establish that the Court has jurisdiction over the defendant. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899 (2d Cir.1981). At this stage of the proceedings, plaintiff can carry that burden simply by making a prima facie showing that jurisdiction exists. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985); Beacon Enters., Inc. v. Menzies, 715 F.2d 757, 768 (2d Cir.1983). Moreover, the Court construes the pleadings and affidavits in the light most favorable to plaintiff and resolves all doubts in its favor. Hoffritz, 763 F.2d at 57; Beacon Enters., Inc., 715 F.2d at 768.

Plaintiff claims that PSM is amenable to suit under section 302(a)(2) of the New York Civil Practice Law and Rules (“CPLR”), which provides, in relevant part, as follows:

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 nondomiciliary ... who in person
2. commits a tortious act within the state.

N.Y.Civ.Prac.Law § 302(a)(2) (McKinney 1972 & Supp.1984).

The Court finds that plaintiff has satisfied its burden of making out a prima facie showing that the requirements of this section are met. Plaintiff charges PSM with tortiously interfering with its contractual relationship with Richardson. Round-ball has shown, by its largely unrebutted affidavits, that PSM sent several letters and made numerous calls to Richardson in New York attempting to establish its own agency relationship with him. Roundball has also shown that PSM made at least two visits to New York in pursuit of that relationship. During one of those visits, PSM, through Healy, escorted Richardson to the Merrill Lynch office and convinced him to revoke Cronson’s power-of-attorney in favor of PSM. Roundball has also shown that PSM held itself out to Richardson’s New York employer as Richardson’s exclusive agent. While PSM calls these contacts with New York “minimal,” I find that they are clearly sufficient to satisfy the jurisdictional requirements of CPLR § 302(a)(2). See New England Laminates Co. v. Murphy, 79 Misc.2d 1025, 362 N.Y.S.2d 730 (Sup.Ct. Nassau Co. 1974); see also Data Communication, Inc. v. Dirmeyer, 514 F.Supp. 26, 30 (E.D.N.Y.1981) (some negotiations must take place in New York to justify exercise of jurisdiction).

New England Laminates is particularly instructive. There a nonresident manufacturer conducted telephonic negotiations with an employee of one of its competitors in order to convince him to become one of its employees. In a suit for maliciously inducing the employee to break his employment contract, the court held that the telephonic negotiations constituted purposeful activities within the state sufficient to sustain jurisdiction under § 302(a)(2). See also Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 308 N.Y.S.2d 337, 256 N.E.2d 506 (1970). PSM’s conduct in New York was much more substantial than that of the defendant in New England Laminates. Thus, the Court has jurisdiction over PSM under CPLR § 302(a)(2).

Of course, in order for the forum state to constitutionally exercise power over the defendant, the defendant must have “certain minimum contacts [with the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ” International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940)). PSM’s contacts are sufficient. By its conduct in New York, PSM “purposefully availed] itself of the privilege of conducting activities within the forum state.” Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958). PSM attempted to establish an agency relationship with a New York resident, employed in New York, which would require it to deal on behalf of its client with his New York employer and with his New York financial institutions. See Travelers Health Ass’n v. Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950) (creation of “continuing obligations” by nonresident to resident of forum sufficient for jurisdiction over nonresident); see also Burger King Corp. v. Rudzewicz, — U.S. —, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984) (nonresident’s activities “purposefully directed” at residents of forum sufficient for jurisdiction over nonresident). Certainly it was foreseeable that PSM would be haled before the courts of this state. WorldWide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980); Montalbano v. Easco Hand Tools, Inc., 766 F.2d 737, 741-42 (2d Cir. 1985).

In sum, the Court finds that it has personal jurisdiction over PSM for plaintiff’s claim of tortious interference with its contractual relationship with Richardson, pursuant to CPLR § 302(a)(2). Moreover, the Court finds that the exercise of jurisdiction over PSM under that section in this case comports with the requirements of the Constitution. Accordingly, defendant’s motion to dismiss is DENIED.

SO ORDERED.

       PSM argues that venue in this district is improper and that this action is in the wrong district. The Court does not understand these to be distinct arguments. In any event, venue in this Court is clearly proper in that plaintiff resides here and the cause of action arose here. 28 U.S.C. § 1391(a). PSM also contests service in this case. Service by mail, however, was also clearly proper in this case. Fed.R.Civ.P. 4(c)(2)(C)(ii).