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The Rogak Report: 01 Feb 2007 ** Jurisdiction - Out of State Defendant **

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  • Lawrence Rogak
    Message 1 of 1 , Feb 1, 2007

      Tese-Milner v. Ad EFX Promotions Inc., 06 Civ. 1630 (USDC - SDNY)
      (Cote, j)

      This decision addresses the issue of whether there is personal
      jurisdiction in New York over a Florida hotel that is party to a
      franchise agreement with a Delaware corporation in a tort action
      arising out of the near-drowning of a Florida resident in the hotel
      swimming pool.

      Defendant Devanjali Inc., doing business as Comfort Inn & Suites
      Tropicana Field ("Comfort Inn"), moved to dismiss the claim against
      it for lack of personal jurisdiction. The plaintiff, Angela Tese-
      Milner, is the Trustee in Bankruptcy of the Chapter 7 case of Sarah
      Louie, the accident victim. Plaintiff asserted personal jurisdiction
      in this diversity action pursuant to New York's long arm statute,
      N.Y. C.P.L.R. §§301, 302(a)(1). For the reasons set forth below,
      Comfort Inn's motion was granted.

      This lawsuit arose out of an accident that took place on January 2,
      2004, on the premises of Comfort Inn in St. Petersburg, Florida. On
      that day, Sarah Louie, a Florida resident, conducted door-to-door
      sales on behalf of her employer Ad EFX Promotions, Inc. ("EFX") with
      four co-workers. While the group stopped for dinner at a restaurant
      near the Tropicana Field baseball stadium in St. Petersburg, one
      member called Comfort Inn to reserve a room. After driving to the
      hotel, one individual checked into the room at the front desk while
      the others went directly to the room.

      Due to EFX regulations, Ms. Louie could not take a shower in the
      overcrowded room and went to the Comfort Inn hot tub and pool area
      with her soap and towel. While the events between Louie's departure
      for the pool area and her subsequent accident have yet to be
      explained, Louie nearly drowned in the Comfort Inn swimming pool.
      When her colleagues pulled her out of the bottom of the pool's deep
      end, she was unconscious and not breathing. A colleague administered
      CPR and hotel personnel called for emergency medical assistance. Upon
      their arrival, emergency medical personnel performed a tracheatomony
      upon Louie and took her to a local hospital. After seven weeks of
      treatment in Florida, Louie's family brought her to New York where
      she currently lives with her parents. As a result of the Accident,
      Louie alleges that she sustained serious injuries, including brain

      Louie declared bankruptcy due to unpaid medical expenses exceeding
      $300,000. Angela Tese-Milner was appointed the Chapter 7 Trustee for
      Louie's case. Plaintiff filed this action on March 1, 2006 against
      Comfort Inn; its franchisor Choice Hotels International, Inc.
      ("Choice"); Charles A. Ledsinger, Jr., the president of Choice; EFX;
      and Dean Chung, an EFX officer. The complaint alleged that the
      Accident and Louie's resulting injuries were caused by the negligence
      of Comfort Inn and the other defendants.

      The Comfort Inn is owned and operated by Devanjali, Inc.,
      incorporated in Florida and with a principal place of business in
      that state. Devanjali is not licensed or authorized to do business in
      the state of New York. It does not maintain any offices or bank
      accounts in New York, nor does it have any employees or telephone
      numbers based in New York.

      Devanjali entered into a franchise agreement with Choice pursuant to
      which it was granted a license, as a franchisee, to use the marks and
      designated logo of Choice in operating the Comfort Inn. According to
      the terms of this agreement, Devanjali paid Choice a non-refundable
      affiliation fee. This agreement required Devanjali to pay Choice at
      least three monthly fees once it had begun to rent rooms at the
      Comfort Inn: a royalty fee, a marketing fee, and a reservation fee.

      No Comfort Inn employees or agents travel outside of the state of
      Florida for marketing or sales purposes. The only business-related
      activity for which Comfort Inn's employees or agents travel outside
      of the state of Florida is the Choice annual meeting, which involves
      all of the corporation's hotel franchisees in the United States.

      Comfort Inn does not create any of its own marketing, promotions, or
      publicity. It does not specifically allocate any money to advertising
      any of its facilities. Comfort Inn has not created and does not
      maintain a website on the internet, nor has it ever requested another
      individual or entity to do so on its behalf. Any websites that
      contain information about Comfort Inn are not created or maintained
      by Comfort Inn.

      Choice is a franchisor of ten mid-market hotel chains, including
      Comfort Inn, Comfort Suites, Quality, Clarion, Econo-Lodge, Rodeway
      Inn, and Main Stay Suites, and has over 1,000 franchisee hotels
      throughout the United States. Choice is a Delaware corporation with
      corporate headquarters located in Maryland.

      Choice uses the fees received from its franchisees across the country
      to provide certain services. It uses the reservation fees to maintain
      a central reservation system ("CRS") for the hotels in its system as
      well as other hotel systems operated by it or its affiliates. Through
      the CRS, customers may book, reserve, and pay for a reservation at
      the Comfort Inn in St. Petersburg, Florida. Choice's E-Commerce
      Department administers the CRS as well as two websites that provide
      information about the company's franchisees, including the Comfort
      Inn. Choice's computer systems operate from servers in Arizona and
      Illinois and its corporate headquarters in Maryland. Choice's E-
      Commerce Department also administers call centers that, among other
      things, receive reservations for its franchisees through toll free
      telephone numbers. These call centers are located in South Dakota and
      Colorado. Choice also uses marketing fees received from its
      franchisees to advertise on television and to produce and distribute
      an annual, printed Worldwide Hotel Directory featuring information
      about its franchisees.

      The Court wrote, "Plaintiff relies on two provisions in New York's
      long arm statute for personal jurisdiction over Comfort Inn. It
      asserts general jurisdiction under N.Y. C.P.L.R. §301... based on the
      actions of its agent, Choice, to market and solicit extensively in
      New York. It also asserts specific jurisdiction under N.Y. C.P.L.R.
      §302(a)(1)... based on the theory that New York-consummated
      reservations for Comfort Inn rooms solicited and made through
      Choice's central reservation system are sufficient to confer long-arm
      jurisdiction on Comfort Inn."

      "In a diversity case, the issue of personal jurisdiction must be
      determined according to the law of the forum state. D.H. Blair & Co.,
      Inc., v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006). A district
      court may exercise jurisdiction over any defendant who would be
      subject to the jurisdiction of a court of general jurisdiction in the
      state in which the district court is located. Fed. R. Civ. P. 4(k)(1)
      (a); Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 94 (2d Cir.
      2000). Any exercise of personal jurisdiction over the defendants must
      also comport with the Due Process Clause. D.H. Blair, 462 F.3d at
      104; Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158,
      165 (2d Cir. 2005). It is well established that on a motion to
      dismiss for lack of personal jurisdiction, the plaintiff bears the
      burden of showing that the court has jurisdiction over the defendant.
      In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir.
      2003) (per curiam). Following discovery, a plaintiff must prove by a
      preponderance of the evidence that personal jurisdiction over the
      defendant exists. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84
      F.3d 560, 567 (2d Cir. 1996); Ball v. Metallurgie Hoboken-Overpelt,
      S.A., 902 F.2d 194, 197 (2d Cir. 1990). If material facts are in
      dispute, a hearing must be held to determine whether the plaintiff
      has satisfied her burden. Ball, 902 F.2d at 197."

      "Under Section 301, personal jurisdiction exists over a foreign
      corporation that is doing business in the state not occasionally or
      casually, but with a fair measure of permanence and continuity.... A
      fact-specific inquiry is necessary to determine whether a
      corporation's contacts with New York demonstrate continuous,
      permanent and substantial activity. The contacts to be considered
      include the existence of an office in New York, the solicitation of
      business in New York, the presence of property in New York, and the
      presence of employees or agents in New York. Solicitation of business
      alone is insufficient to find general jurisdiction."

      "New York courts may exercise jurisdiction over a foreign corporation
      based upon the activities performed by its agent in New York."

      "Under well-established New York law, a court of New York may assert
      jurisdiction over a foreign corporation when it affiliates itself
      with a New York representative entity and that New York
      representative renders services on behalf of the foreign corporation
      that go beyond mere solicitation and are sufficiently important to
      the foreign entity that the corporation itself would perform
      equivalent services if no agent were available."

      "To come within the rule, the plaintiff need demonstrate neither a
      formal agency agreement, nor that the defendant exercised direct
      control over its putative agent. The agent must be primarily employed
      by the defendant and not engaged in similar services for other

      "The plaintiff has failed to satisfy the requirements of Section 301
      by showing that Comfort Inn engages in continuous, permanent, and
      substantial activity in New York either on its own or through its
      agent Choice. It is undisputed that Comfort Inn is incorporated and
      located in Florida and that it does not have any presence in New
      York. Its solicitation of New York residents through the Choice
      website and its receipt of income from New York residents who stay at
      Comfort Inn in Florida are insufficient to create general
      jurisdiction in New York over Comfort Inn."

      "Plaintiff's resort to an agency theory for general jurisdiction
      fails. To the extent Choice performs marketing, solicitation, and
      reservation services for Comfort Inn, it does the same for many other
      franchisees. Even if it were appropriate to consider Choice to be
      Comfort Inn's agent for the purposes of the Frummer test, Choice is
      not a New York entity and does not perform these services for Comfort
      Inn in New York. Choice is a Delaware corporation with its principal
      place of business in Maryland. The computer systems and servers
      through which Choice allegedly markets and solicits business in New
      York on behalf of its approximately 1,000 franchisees are located in
      Arizona and Colorado. That significant business revenue may flow to
      Comfort Inn from New York residents is irrelevant in this context as

      "Section 302(a)(1) allows the exercise of personal jurisdiction if
      the defendant transacts any business within the state and the cause
      of action arises from that business activity. New York courts have
      held that a claim arises from a particular transaction when there is
      some articulable nexus between the business transacted and the cause
      of action sued upon, or when there is a substantial relationship
      between the transaction and the claim asserted. A connection that is
      merely coincidental is insufficient to support jurisdiction. This
      inquiry is a fact-specific one."

      "In cases involving internet activity, personal jurisdiction over a
      defendant is not appropriate simply because the defendant maintains a
      website which residents of New York may visit. The exercise of
      personal jurisdiction depends upon the nature and quality of
      commercial activity that an entity conducts over the internet.
      Citigroup Inc. v. City Holding Co., 97 F. Supp. 2d 549, 565 (S.D.N.Y.
      2000) (citation omitted). In the Section 302(a)(1) context, it also
      depends on the relationship between the website activity and the
      plaintiff's claim."

      "The plaintiff has failed to make a prima facie showing of an
      articulable nexus or substantial relationship between any business
      transaction in New York and the instant action that would support
      specific jurisdiction under Section 302(a)(1). The plaintiff has
      engaged in extensive efforts to demonstrate that Comfort Inn
      transacts business in New York through its reliance on and use of
      Choice's solicitation and marketing activities - whether through the
      CRS, the web, print media, call centers, or television advertising.
      These efforts, however, are insufficient to support specific
      jurisdiction without a showing that such business bears an
      articulable nexus or substantial relationship to the instant action:
      a tort claim based upon Comfort Inn's alleged negligence in owning,
      operating, supervising, and maintaining a swimming pool located on
      its premises in Florida. Plaintiff admits that Louie and her
      colleagues reserved their room at the Comfort Inn through a telephone
      call from a nearby restaurant, not through the Choice CRS system or
      any other purported Comfort Inn business transaction in New York.
      That New York residents may make reservations at the Comfort Inn
      through the online CRS system, that Comfort Inn employees use the CRS
      system on a daily basis to let rooms and secure payment for hotel
      services, or that the CRS system does 'everything except clean' the
      Comfort Inn is not dispositive. Since plaintiff's negligence claim
      against Comfort Inn does not 'arise from' any Comfort Inn business
      transaction in New York, Section 302(a)(1) cannot support specific
      jurisdiction over Comfort Inn."

      "Plaintiff's reliance on Agency Rent A Car, 98 F.3d 25, is
      unavailing. In that licensing dispute, out-of-state defendants
      transacted 'continual, repetitive, and essential' business in New
      York, which included almost daily contact and the 'continuous
      transmission of payments and reports' to the licensor-plaintiff, a
      New York resident corporation. The claim for declaratory relief
      arose out of these New York business transactions because the claim
      sought to interpret the licensing agreements pursuant to which the
      defendants conducted their New York business."

      "The motion by Comfort Inn to dismiss for lack of personal
      jurisdiction is granted."

      Larry Rogak
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