Friedman, Esq. v. Nexien, Inc.

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK --------------------------------------------------------------X RONALD J. FRIEDMAN, ESQ., in his capacity as Trustee of ELLETT BROTHERS, LLC, a/ka/ ELLETT BROTHERS, INC., Plaintiff, ORDER 21-CV-03292 (DRH) (JMW) -againstNEXIEN, INC., Defendant. --------------------------------------------------------------X APPEARANCES Attorney for Plaintiff SILVERMAN, ACAMPORA LLP 100 Jericho Quadrangle Suite 300 Jericho, New York 11753 By: Gayle Sharon Gerson Attorney for Defendant KIM, CHO & LIM, LLC 460 Bergen Boulevard Suite 305 Palisades Park, New Jersey 07650 By: Sean Seokchan Kwak WICKS, Magistrate Judge: oral argument (DE 22), the Court declines Defendant’s invitation to stay discovery “[T]he power to stay proceedings is pending the motion to dismiss. Accordingly, incidental to the power inherent in the motion for a stay is denied. every court to control the disposition of the causes on its docket with economy of time and effort for itself, STATEMENT OF FACTS for counsel, and for litigants. How this can best be done calls for the Defendant, Nexien, Inc. (“Nexien”) is exercise of judgment, which must a corporation organized and existing under weigh competing interests and the laws of New Jersey operating out of its maintain an even balance.”1 headquarters located in Ridgefield, New Jersey. (DE 17-2 at 6.) Defendant also has a At the nascent stage of this breach of satellite office in South Carolina, located at contract action, Defendant moved to dismiss 2816 Main Street, Suite B, Newberry, South on three grounds, namely (1) this Court lacks Carolina. (Id.) Samsung is Defendant’s personal jurisdiction over Defendant; (2) the largest client, and one of its manufacturing District of South Carolina, rather than the plants is located in Newberry, South Eastern District of New York, is the proper Carolina. (Id.) venue for this action; and (3) the principle of forum non conveniens dictates that this case Ellett Brothers, Inc. (“Ellett”) is a should be tried in South Carolina because all South Carolina limited liability company that evidence and witnesses are located there. was the owner of and was headquartered at That motion is presently pending before the 267 Columbia Ave., Chapin, South Carolina Hon. Denis R. Hurley. (DE 14.) If granted, (the “Premises”). (DE 20 at 7.) On June 10, Defendant’s motion to dismiss would be the 2019, Ellett filed a petition for bankruptcy in death knell to Plaintiff’s entire case. On the the United States Bankruptcy Court for the heels of that motion, Defendant now seeks a District of Delaware. (Id.) On November 6, stay of discovery pending a decision on the 2019, the Bankruptcy Court confirmed a Plan motion to dismiss. (DE 17.) of Liquidation under which Plaintiff, Ronald J. Friedman, was designated as the Defendant, confident in its motion, liquidation trustee for post-confirmation portends a high likelihood of success on the proceedings. (Id.) All of the assets of the motion to dismiss. Plaintiff, not surprisingly, debtors, including the Premises, were is quite pessimistic about Defendant’s transferred to a liquidation trust administered chances on the dismissal motion. by Plaintiff. (Id.) Plaintiff then engaged the services of a South Carolina real estate broker Having reviewed the submissions to market the Premises for lease, and in (DE 17, 18, 19, 20, 21),2 and having heard September 2020, Defendant contacted 1 Landis v. N. Am. Co., 299 U.S. 248, 254 (1936) (E.D.N.Y. Oct. 30, 2007) (“The document is not (Cardozo, J.). actually an affidavit, since it is unsworn, and is not 2Defendant challenged the declaration submitted by admissible as an unsworn declaration because it is counsel for Plaintiff as non-compliant under 28 U.S.C. undated.”) While the initial filing was indeed non- § 1746 since it fails to state that the contents are “true compliant, as it was the declaration of Plaintiff’s and correct” (DE 19) and, as such, should be attorney rather than Plaintiff, the Court granted leave considered inadmissible. See Williams v. Keisler, No. during oral argument to permit Plaintiff to resubmit a 07 CV 503 (ARR), 2007 WL 9723294 , at *4 compliant declaration, which he did. (See DE 23.) Plaintiff through his attorney and initiated defendant. (Id.) Defendant then served its negotiations for Defendant’s lease of the Motion to Dismiss in this action, followed by Premises. (Id. at 8.) These negotiations took the instant motion for a stay. place between Plaintiff’s attorney located in New York and Defendant’s representatives who were located in New Jersey. (Id.) APPLICABLE STANDARD ON A The lease agreement, which was MOTION FOR A STAY executed on or about November 1, 2020 by Plaintiff and Defendant’s operations It is axiomatic that the mere filing of manager, Paul Kim, identifies Plaintiff as the a motion to dismiss or other dispositive landlord and states his physical New York motion simply does not stay discovery in an location. (Id.) The lease also provides that action. A party may, however, seek such rent payments are to be made to the Landlord relief under Fed. R. Civ. P. 26(c). “Although at his New York address. (Id.) Paul Kim is not expressly authorized by statute or rule, . . currently a defendant in a criminal action in . the federal district courts have discretion to the District of South Carolina, concerning impose a stay of discovery pending the matters relating to his negotiation of the very determination of dispositive motions by the lease at issue in this case. issuance of a protective order.” Hachette Distrib., Inc. v. Hudson Cnty. News Co., Inc., Pursuant to the lease, Defendant 136 F.R.D. 356, 358 (E.D.N.Y. 1991) (Spatt, completed its payments for the first two J.) (collecting cases). Rule 26 contemplates months via ACH payments made to that a court may stay discovery while a Plaintiff’s New York bank account. (Id. at 9.) motion to dismiss is pending, but only if In total, Defendant paid approximately “good cause” is shown. Hollins v. U.S. Tennis $118,057.36 to Plaintiff for the security Ass’n, 469 F. Supp. 2d 67, 78 (E.D.N.Y. deposit and two monthly rent payments. (Id.) 2006) (citations omitted); see also Chesney v. On January 21, 2021, Defendant informed Valley Stream Union Free Sch. Dist. No. 24, Plaintiff by letter of its intent to surrender the 236 F.R.D. 113, 115 (E.D.N.Y. 2006). This Premises, and that Defendant defaulted under mandate of a showing of “good cause” is the lease. (Id.) On or about April 6, 2021, critically important because Rule 1 of the Defendant sued Paul Kim for fraud in South Federal Rules of Civil Procedure advises that Carolina District Court. However, Plaintiff the Rules “should be construed, here was not named in the action. (Id.) administered, and employed by the court and the parties to secure the just, speedy, and Plaintiff—unaware of the South inexpensive determination of every action Carolina action—commenced this action on and proceeding.” Fed. R. Civ. P. 1. Indeed, June 11, 2021. (Id.) On July 21, 2021, a request to stay litigation appears to be the Defendant filed a Letter Motion objecting to antithesis of that very command. Some personal jurisdiction and venue with no commentators, for example, have in fact mention of the South Carolina action. (Id. at questioned whether staying discovery in fact 10.) Thereafter, Defendant filed a motion for stays justice.3 Accordingly, even when both leave to amend its complaint in the South parties consent to a stay, the court is under a Carolina action to add Plaintiff as a duty to determine whether a stay is justified. 3 See, e.g., Kevin J. Lynch, When Staying Discovery When a Motion to Dismiss is Pending, 47 Wake Forest Stays Justice: Analyzing Motions to Stay Discovery L. Rev. 71, 72 (2012). Cf. Separ v. Cnty. of Nassau, 21-CV-00010, of this action. (Id. at 11.) In addition, 2021 WL 2474263 (E.D.N.Y. June 17, 2021) Defendant argues the Court lacks personal (unopposed motion to stay). jurisdiction in that Defendant has no contact with New York, as (1) it is domiciled in New Motions seeking a stay, require a Jersey; (2) it has its relevant satellite office in careful balancing of a fact-specific inquiry South Carolina; (3) the lease involves real and a case-by-case analysis, considering the property in South Carolina; and (4) nearly all nature and particular circumstances of the aspects of the transaction between Plaintiff case and the companion dispositive motion. and Defendant occurred in South Carolina. Thomas v. N.Y. City Dep’t of Educ., 2010 WL (Id.) Finally, Defendant contends that that all 3709923, at *3 (E.D.N.Y. Sept. 14, 2010). factors of the forum non conveniens As such, courts look to the following factors: analysis—other than the fact that Plaintiff (1) whether the defendant has made a strong brought the case in his home jurisdiction— showing that the plaintiff’s claim is weighs in favor of discretionary dismissal. unmeritorious; (2) the breadth of discovery (Id.) and the burden of responding to it; and (3) the risk of unfair prejudice to the party opposing Defendant next asserts that the factor the stay. See Rivera v. Inc. Vill. of of burdensome discovery weighs heavily in Farmingdale, No. 06-civ-2613 (DRH) its favor because this forum increases its (ARL), 2007 WL 3047089 , at *1 (E.D.N.Y. financial and other burdens. (Id. at 11–12.) Oct. 17, 2007) (citing Port Dock & Stone According to Defendant, both it and Plaintiff Corp. v. Oldcastle Ne., Inc., No. 05-civ-4294 are parties to ongoing litigation in South (DRH) (ETB), 2006 WL 897996 (E.D.N.Y. Carolina, and all transactions related to Mar. 31, 2006)). Defendant’s business, witnesses, and evidence are located in South Carolina. (Id. It is with these guideposts in mind at 12.) Defendant argues that discovery in that the Court analyzes Defendant’s New York would require several application. representatives of Defendant to travel between the states for discovery and that THE ARGUMENTS ADVANCED counsel would also need to travel to depose any witnesses. Defendant cites to Federal Defendant’s Arguments for a Motion to Rule of Civil Procedure 45(c), which states Stay that “[a] subpoena may command a person to attend a trial, hearing, or deposition . . . within Defendant describes the “most simple 100 miles of where the person resides.” (Id.) and dispositive argument for the dismissal,” Because New York is more than 100 miles which it claims is the law of South Carolina. away from South Carolina, Defendant argues (DE 17-2 at 10.) Defendant alleges this law that discovery in this forum would be is applicable, which provides that “[a]ctions burdensome. (Id.) In addition, Defendant which must be tried where subject matter is argues that this action imposes unnecessary situated . . . for all matters between landlord burden for both Defendant and Plaintiff and tenant . . . including . . . payment or because both parties will duplicate their collection of rent.” (Id. (quoting S.C. Code discovery efforts in South Carolina and New Ann. § 15-7-10).) Defendant claims that the York. (Id.) choice-of-law provision in the lease and this provision of South Carolina law is dispositive According to Defendant, the breadth Plaintiff will suffer no prejudice by staying of discovery will be broad and necessarily discovery. (Id.) will include the transactions between Paul Kim and Plaintiff. (Id.) Paul Kim is no Plaintiff’s Arguments Opposing the Stay longer in Defendant’s control, but he purportedly acted as Defendant’s agent in Plaintiff alleges that this Court does nearly all communications with Plaintiff. have personal jurisdiction based on (1) (Id.) Defendant will be forced to review Defendant’s initiation of negotiations with many documents between Paul Kim and Plaintiff, a New York-based trustee; (2) Plaintiff, and Defendant claims that because negotiations that occurred through email and Paul Kim was a fraudster, the records are telephonic means, with agents or employees likely to be fabricated. (Id. at 13.) This will of Defendant communicating with the force Defendant to attempt to decipher what trustee’s agents in New York; (3) the Lease is authentic in the records. That Paul Kim’s Agreement’s provision that Defendant’s residency is in South Carolina further main point of contact would be the trustee, as burdens discovery in this forum. (Id.) landlord; and (4) Defendant’s submission of the security deposit, and first month’s rent, Furthermore, Defendant intends to via ACH transfer to a trust account located in bring a third-party claim against Paul Kim if New York. (DE 20 at 14.) Along with the Motion to Dismiss is denied. (Id.) Thus, personal jurisdiction, Plaintiff reasons that a Defendant argues that proceeding in district court may permit discovery in aid of discovery in this action now would involve a dismissal motion, and the Court may allow travel and segmented discovery, whereas a discovery on the limited issue of Defendant’s stay if and until the Motion to Dismiss is contacts with the state of New York. (Id. at denied would allow the parties to conduct 11 (citing David Tunick, Inc. v. Kornfeld, No. discovery concerning the claims, defenses, 91-Civ-7027 (DNE), 1993 WL 6211 , at *2 and anticipated third-party complaint (S.D.N.Y. Jan. 6, 1993)).) Plaintiff argues simultaneously. (Id.) Additionally, that Defendant should not be allowed to discovery in the South Carolina action, escape such discovery by its Motion to Stay. Defendant alleges, affords both parties the (Id.) same discovery opportunity without travel, Additionally, Plaintiff argues that this and it will be streamlined as Paul Kim is action concerns Defendant’s breach of a already named as a defendant in that action. lease, and it may not defeat a breach of (Id.) contract claim by contending that a third party tricked or defrauded it into entering the As to the last prong of the analysis— contract. (Id. at 5.) The pending actions undue prejudice—Defendant rests its against Paul Kim are not relevant here, and argument on two cases, Giminez v. L. Offs. of Plaintiff argues that Defendant can pursue Hoffman & Hoffman, 12-cv-0669, 2012 WL Paul Kim to indemnify it for its losses. (Id. 2861014 (E.D.N.Y. July 11, 2012) and at 6.) Because Plaintiff states that the South Separ, 2021 WL 2474263 , which found that Carolina Action is irrelevant here and because those actions were in their infancy, a frivolous, he argues a stay of discovery is not stay of discovery would pose little prejudice warranted on the basis of the pendency of the to plaintiffs. (Id. at 14.) Defendant argues South Carolina action. (Id.) that the parties have not begun discovery, except for 26(a)(1) initial disclosures, thus Plaintiff turns to Defendant’s generate a substantial recovery. (Id.) contention that the law of South Carolina, Plaintiff argues that any delay to the which requires that any action between a resolution of his claim harms Plaintiff and landlord and tenant be tried in the county every creditor involved. (Id.) where the subject premises is located, will dismiss Plaintiff’s claim. (Id. at 15.) ANALYSIS Plaintiff argues that federal courts sitting in diversity, like this Court, must apply the The Court first turns to whether substantive law of the state governing the Defendant has made a strong showing that dispute, but the procedural laws of the federal Plaintiff’s claims are unmeritorious. This is courts. (Id. (citing Hanna v. Plumer, 380 done, however, without prejudging the U.S. 460, 465 (1965)).). Thus, Plaintiff motion to dismiss that is sub judice before contends that because federal venue rules Judge Hurley. Rather, the task of analyzing apply here—as venue is a procedural issue— the merits of the claims is merely one piece and because the Lease Agreement does not of the larger puzzle fact-specific that must be have a forum selection clause, Plaintiff was undertaken on a stay application. within its right to commence action in New York. (Id. at 16.) Plaintiff argues that the Defendant’s initial argument relying choice-of-law provision is substantive law on the choice of law provision in the contract which governs the dispute and that it applies at issue appears meritless. It is well-settled to cases brought before the South Carolina that a choice of law provision does not dictate state courts. (Id.) Moreover, Plaintiff asserts where a litigation will proceed. Harrington that the venue chosen by Defendant for the v. Carter, 17-cv-2343 (ADS) (ARL), 2017 South Carolina Action is still not the county WL 4621618, at *3 (E.D.N.Y. Oct. 7, 2017). in which Section 15-7-10 of South Carolina’s Thus, the provision stating that South law would compel the case to be heard, as the Carolina law applies to any disputes arising premises in question is located in Lexington out of the contract has no bearing on venue. County and Defendant selected Columbia And even to initially consider South Carolina County as the venue. (Id. at 17.) law, which, on its face, dictates that matters concerning landlord-tenant disputes must Plaintiff contends that its discovery proceed in the jurisdiction where the property demands are inherently narrow because they is located, this Court must nonetheless apply are directed at ascertaining the scope of federal venue principles, as venue is a matter Defendant’s contacts with New York in of procedure rather than substance. Martinez connection with the lease, as well as his claim v. Bloomberg LP, 740 F.3d 211, 220 (2d Cir. for indemnification of any liability on the 2014) (“Questions of venue . . . are Mechanic’s lien. (Id. at 18.) essentially procedural, rather than substantive, in nature, and therefore should Finally, Plaintiff argues that a be governed by federal law.”) (internal substantial risk of prejudice to Plaintiff is quotation marks and citations omitted); see present if a stay is imposed. (Id. at 19.) Am. Dredging Co. v. Miller, 510 U.S. 443 , Because Plaintiff is the trustee charged with 453 (1994) (noting that “venue is a matter liquidating assets of a bankruptcy debtor for that goes to process rather than substantive the benefit of the debtor’s creditors, rights”). Thus, Defendant’s threshold Plaintiff’s claim against Defendant is a argument regarding the effect of the contract considered a valuable asset, which could provisions on venue appears meritless. allegations which controvert their prima facie As to the personal jurisdiction case.” Id. (quoting Sodepac, S.A. v. Choyang argument in the dismissal motion, “the court Park in Rem, No. 02 Civ 3927 (SAS), 2002 must consider whether the lawsuit “aris[es] WL 31296341, at *2 (S.D.N.Y. Oct. 10, out of or relat[es] to the defendant’s contacts 2002). When a court has not held any with the forum” to determine if jurisdiction hearings or trial on the merits, like here, “‘all exists. Laydon v. Mizuho Bank, Ltd., No. 12 pleadings and affidavits must be construed in Civ. 3419 (GBD), 2015 WL 1515358 , at *1 the light most favorable to [plaintiff] and all (S.D.N.Y. Mar. 31, 2015) (quoting doubts must be resolved in . . . plaintiff’s Helicopteros Nacionales de Colombia, SA. v. favor.”’ Id. (quoting Landoil Res. Corp. v. Hall, 466 U.S. 408 , 414–15 (1984)). To Alexander & Alexander Servs., Inc., 918 F.2d determine minimum contacts, courts focus on 1039, 1043 (2d Cir. 1990)). “‘the relationship among the defendant, forum, and the litigation.’” Id. (quoting While Defendant asserts a lack of Colder v. Jones, 465 U.S. 783, 788 (1984)). jurisdiction argument, this claim is in sharp “[T]he plaintiff cannot be the only link dispute and does not, on its face, make a between the defendant and the forum.” strong showing that Plaintiff’s claims lack Walden v. Fiore, 571 U.S. 277, 286 (2014). merit. First, Plaintiff alleges that In New York, CPLR § 302 governs, and Defendant’s lease agreement with Plaintiff, a “specific jurisdiction ‘depends on an resident of New York, payments to Plaintiff’s affiliation between the forum and the New York bank, and negotiations with underlying controversy, principally, activity Plaintiff, a trustee in New York, is sufficient or an occurrence that takes place in the forum to establish that Defendant purposely availed State and is therefore subject to the State’s itself of New York. See Polish Army regulation.’” Godoy v. BMW of N. Am., LLC, Veterans of Am., Inc. v. Stasiewicz, No. 2016-CV-5502(DRH)(SIL), 2018 WL CV-3419 (MKB), 2021 WL 3130090 , at *5 4608200, at *4 (E.D.N.Y. Sept. 25, 2018) (E.D.N.Y. July 23, 2021) (“Under New York (quoting Goodyear Dunlop Tires Operations, state law, a defendant’s lack of physical S.A. v. Brown, 564 U.S. 915, 919 (2011)). presence in the state is not dispositive of New York’s long-arm statute set forth in whether he transacts business within the CPLR § 302 states that courts have “specific state, ‘so long as the defendant’s activities jurisdiction over non-domiciliaries ‘who, in [within the state] were purposeful and there person or through an agent . . . (i) transacts is substantial relationship between the business within the state or contracts transaction and the claim asserted”’) (quoting anywhere to supply goods or services in the Fischbarg v. Doucet, 9 N.Y.3d 375 , 380 state.”’ Id. (citation omitted). (2007)). ‘“Purposeful activities’ are ‘those with which a defendant, through volitional On a motion to dismiss for lack of acts, avails itself of the privilege of personal jurisdiction, Plaintiff bears the conducting activities within the forum State, burden of showing jurisdiction and, prior to thus invoking the benefits and protections of discovery, Plaintiff need only show facts its laws.’” Id. (quoting Eades v. Kennedy, PC constituting a prima facie showing in order to Law Offs., 799 F.3d 161 , 167–68 (2d Cir. defeat a motion to dismiss. Hollins, 469 F. 2015 )). Defendant, although not physically Supp. 2d at 70. “Plaintiffs may rely entirely present in the state of New York, contracted on allegations of fact, and they will prevail with Plaintiff, a New York resident, and sent even if the moving party makes contrary a number of payments to Plaintiff’s New York bank account as required in the lease has made a strong showing on this branch of agreement. While undoubtedly a close call, its motion. this likely satisfies the purposeful contacts required for specific jurisdiction. See FIA The parties’ arguments regarding the Leveraged Fund v. Grant Thornton LLP, 150 burden and breadth of discovery are both A.D.3d 492, 493–94 (2d Dep’t 2017) (finding persuasive and, taken together, do nothing to personal jurisdiction where defendant move the needle in either direction. communicated with plaintiff via email, the Defendant’s position is that all documents, agreement at issue had wire instructions into witnesses, and anticipated third-party New York, and Defendant transferred funds defendants are located in South Carolina. to a New York bank). At a minimum, Moreover, the parties are already engaged in Defendant has not made the required “strong litigation in that state, which would likely showing” to support a stay of discovery. lead to duplicative discovery. Plaintiff, for its part, points to the fact that this litigation Next, the Court considers concerns the breach of a lease agreement. As Defendant’s forum non conveniens argument. such, discovery will be minimal and not That doctrine, of course, allows a court to burdensome, but rather “inherently narrow.” refrain from exercising its jurisdiction over a Although both parties advance valid case notwithstanding that such jurisdiction is arguments on that point, the Court notes the technically proper. Flynn v. Gen. Motors, recent prevalence and predicted permanency Inc., 141 F.R.D. 5, 8 (E.D.N.Y. 1992). A of conducting depositions virtually, motion to dismiss based on forum non alleviating a number of issues raised by conveniens “is a fact-intensive inquiry that Defendant. proceeds in three steps,” requiring the district court to “(i) determine the degree of Finally, as to the undue prejudice deference to be accorded to plaintiff’s choice prong, although both parties make persuasive of forum; (ii) determine whether an adequate arguments regarding whether there would be alternative forum to entertain plaintiff’s undue prejudice to Plaintiff if a stay were claims exists; and (iii) balance the private and granted, the Court finds this prong neutral as public interest factors[.]” Celestin v. well. Defendant contends that because the Martelly, 450 F. Supp. 3d 264 , 272 n.6 South Carolina action is on-going, Plaintiff (E.D.N.Y. 2020). will be able to conduct discovery related to the lease agreement in that case while the Although Plaintiff’s opposition does motion to dismiss here is resolved. Plaintiff not address Defendant’s argument regarding takes the stance that, given his position as a forum non conveniens and Defendant does liquidation trustee, time is of the essence for make a persuasive argument, “unless the him to round up assets of the bankruptcy balance is strongly in favor of the defendant, estate and satisfy creditors. the choice of forum should rarely be disturbed.” Gulf Oil Corp. v. Gilbert, 330 The Court concludes that a stay of U.S. 501, 508 (1947). Based on this discovery here does not advance the ends of principle, paired with the fact that forum non justice. The parties’ dispute over the lease— conveniens is a discretionary factor analysis whether litigated here, in South Carolina or employed by the district court, it is difficult any other venue—will require discovery. to conclude at this juncture that Defendant Discovery produced here, could very well be used elsewhere even if this case is dismissed. CONCLUSION In sum, discovery should not be stayed in this case given that Defendant has not made a strong showing that it will succeed on the motion to dismiss, even if the burden and prejudice prongs weigh in neither parties’ favor. Accordingly, in the exercise of discretion, the motion for a stay of discovery is hereby DENIED. Dated: Central Islip, New York November 9, 2021 S O O R D E R E D: James M. Wicks /s/ James M. Wicks United States Magistrate Judge