Appeal from a Fed. R. Civ. P. 54(b) judgment of the United States District Court for the Eastern District of New York, Joseph M. McLaughlin, Judge, dismissing plaintiff's complaint asserting causes of action for common-law fraud, breach of fiduciary duty, and violations of civil RICO and New York's Franchise Sales Act, N.Y. Gen. Bus. Law §§ 680 et seq., on the ground that personal jurisdiction may not be asserted over the moving defendants. Reversed.
Kaufman, Cardamone, and Pratt, Circuit Judges.
This is an appeal from a Fed. R. Civ. P 54(b) judgment of the United States District Court for the Eastern District of New York, Joseph M. McLaughlin, Judge, granting motions by three of the individual defendants to dismiss for lack of personal jurisdiction. The plaintiff, a New York corporation, had asserted claims of common-law fraud, breach of fiduciary duty, and violations of civil RICO and of New York's Franchise Sales Act, N.Y. Gen. Bus. Law §§ 680 et seq. (McKinney 1984) ("FSA"). We recite the plaintiff's version of the facts, which we take to be true for the purposes of review.
Plaintiff Retail Software Services ("Retail") is a New York corporation. Softwaire Centre International ("SCI"), now bankrupt, was a California franchisor of retail microcomputer software stores. SCI was formed in 1981 by the late George Tate, who was well known in the computer field and whose estate was one of the moving defendants below, along with two other defendants who were not involved in the proceeding that led to this appeal.
SCI transacted business in New York by registering and soliciting franchise sales here and by conducting franchise negotiations with Retail here. In 1984 Retail purchased from SCI in New York seven franchises that were to operate in Manhattan and on Long Island. Retail paid $187,000 in deposits and incurred substantial additional expenses before SCI went bankrupt a few months later, without performing under the agreement.
Retail brought this action in the district court against various individuals and a corporation associated with the bankrupt SCI. The claims that are relevant to this appeal were advanced under the FSA. Retail alleged that it had purchased the franchises in reliance on a series of misrepresentations and omissions that were made in violation of the FSA by SCI and the defendants.
The three individual defendants who moved in the district court to dismiss for lack of personal jurisdiction are: Robert Fick, who was SCI's vice president for finance and chief financial officer and who owned .7% of SCI's stock; William Janeski, who was president and chief executive officer of SCI as well as a director and 4.6% shareholder; and the estate of George Tate, who had been a director, 31.55% shareholder, vice-president, and secretary of SCI. Fick and Janeski are alleged to have made, at a California meeting with Retail, misrepresentations about SCI's financial condition, the nature of Tate's involvement with the venture, and the extent to which SCI would provide training facilities in New York. Janeski is alleged to be responsible for misleading financial statements, for a misleading offering prospectus that was part of the franchise registration that was filed in New York, and for the advertising of franchise sales in New York. In addition, while negotiating by telephone with Retail's president in New York, Janeski made misleading representations and omitted material, negative information about SCI's financial condition. Fick is alleged to have withheld crucial information about SCI's financial condition, while personally misrepresenting material facts in order to persuade Retail to purchase the franchises. Tate is alleged to have allowed the other defendants to misrepresent the extent of his involvement with SCI franchises. Retail also claims that SCI caused its franchisees, including Retail, to purchase obsolete goods from one of Tate's other companies. All of the defendants are alleged to have acted with intent to defraud Retail.
Retail asserts two bases for personal jurisdiction over the moving defendants: New York's Franchise Sales Act itself, and New York's long-arm statute, N.Y. Civ. Prac. Laws & Rules § 302(a)(1), (2) and (3) (McKinney 1972 & Supp. 1988).
Although the FSA provides a method for service of process on nonresident defendants, see N.Y. Gen. Bus. Law § 686, the district court held that the act does not provide a basis for personal jurisdiction over nonresident officers and directors of a corporation that sold franchises in New York. Furthermore, the district court concluded that "to subject an individual to the jurisdiction of the New York courts simply because he is in some way affiliated with a company engaged in franchise sales here would offend 'traditional notions of fair play and substantial justice,' International Shoe Co. v. Washington, 326 U.S. 310, 316, 90 L. Ed. 95, 66 S. Ct. 154 (1945)."
As to possible long-arm jurisdiction under N.Y. Civ. Prac. Laws & Rules § 302, the district court rejected the notion that officers or directors can be deemed to have acted through their corporation in transacting business or causing a tort within the state. In rejecting Retail's § 302 argument, the district court disapproved, but nevertheless relied upon, the fiduciary shield doctrine.
Before oral argument of this appeal, Retail settled with the estate of George Tate, so we concern ourselves only with the claims against Fick and Janeski. Fick did not file a brief or argue in this appeal, and Janeski filed, pro se, a two-page brief asserting that "traditional notions of fair play and substantial justice would be offended by the exercise of personal jurisdiction" over him.
Because we conclude that personal jurisdiction over Fick and Janeski may be exercised pursuant to New York's long-arm statute without violating the ...