Fantis Foods, Inc. v. Standard Importing Co.

63 A.D.2d 52, 406 N.Y.S.2d 763, 1978 N.Y. App. Div. LEXIS 11314

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: June 27, 1978
• Status: Published

Opinions

OPINION OF THE COURT

Lupiano, J.

Defendant Standard Importing Co., Inc., a domestic (NY) corporation with principal offices in New York City, is an importer, wholesaler and distributor in the United States of foreign cheeses and other food products. Plaintiff Fantis Foods, Inc., a domestic (NY) corporation with principal offices in New York City, is a local competitor of Standard. Fantis initiated suit against Standard and others in the Supreme Court of the State of New York, alleging, inter alia, that it purchased 300 barrels of Greek feta cheese from Synergal, Ltd., a corporation located in and doing business in Greece on or about August 6, 1976; that while the goods were in transit from Greece to New York, Synergal as shipper provided for surrender of the documents evidencing their ownership to Fantis; that upon arrival of the cheese in New York, Fantis on presentation of its documents evidencing ownership, was refused delivery, the goods having been "wrongfully” appropriated by Standard. This conversion of the 300 barrels of cheese by Standard is therefore alleged to have occurred in New York.

Standard in its answer by way of affirmative defenses and counterclaims asserts that the 300 barrels of feta cheese were part of a purchase by it pursuant to contract dated July 26, 1976 of 1,200 barrels of feta cheese from Synergal, Ltd., f.o.b. Piraeus, Greece. Synergal at the time in issue was the sole or dominant seller and exporter of feta cheese made in Greece. On or about July 24, 1976, in compliance with the contract, Standard established an irrevocable credit of $150,000 in favor of Synergal and guaranteed payment of the cheese. Standard asserts that Synergal converted this cheese by subsequently selling it to Fantis and arranging for its transfer to Fantis in New York, but that as to the first 300 barrels, Standard frustrated the scheme by obtaining this first shipment. Defendant Standard commenced a third-party action against Synergal seeking to recover damages, compensatory and punitive.

Synergal, Ltd., moved to dismiss Standard’s third-party complaint on the grounds that "(1) no basis exists for the [court’s] exercise of in personam jurisdiction over Synergal, and (2) Standard and Synergal agreed to resolve all disputes in the courts of Greece.” Special Term denied the motion, observing as follows: "Delivery of the cheese was taken by Standard in Greece, its trademark was stamped on the cheese and 300 of 1200 barrels were actually shipped. The other 900 barrels were, having been weighed, analyzed and stamped with the trademark, segregated and held at Synergal’s factory pending shipment. After the 300 barrels were shipped, and copies of the shipping documents given to Standard’s Greek agent, Synergal arranged to have the shipment diverted and the original shipping documents sent to the plaintiff. The 900 barrels Synergal shipped to the plaintiff.” This presentation relied on by Special Term is gleaned from the facts as pleaded and alleged. Synergal does not dispute this presentation, but contends that under same, Standard’s only claim is for breach of contract; that the requirements for in personam jurisdiction over Synergal have not been met under CPLR 302 (subd [a], par 3, cl [ii]), and that the contractual forum selection clause must control.

CPLR 302 (subd [a], par 3, cl [ii]) provides that "a court may exercise personal jurisdiction over any non-domiciliary * * * who * * * commits a tortious act without the state causing injury to person or property within the state * * * if he * * * expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce”. Standard’s claim against Synergal clearly sounds in tort and not in (breach of) contract. The contract between Standard and Synergal provided that the sale price is $2,500 per ton f.o.b. Piraeus, that "[f]rom the time it leaves the factory, the cheese is the responsibility of the Buyer” and that "[d]elivery of [c]heese: [w]ill take place in the * * * Factory or the Refrigerated Warehouses”. The 1,200 barrels being marked with Standard’s trademark "SICO,” weighed and segregated as its property, Standard accepted delivery by giving its certificate attesting to weight and physical composition. Standard as owner directed Synergal to ship the cheese in four weekly successive shipments of 300 barrels each. Synergal’s subsequent attempt, as alleged by Standard, to convey the 1,200 barrels to Standard’s competitor Fantis, arose after Standard became entitled to rightful possession of all 1,200 barrels and amounted to a conversion (the effort succeeding as to the 900 barrels).

The crux of the instant appeal is whether the alleged tortious act committed by Synergal, a nondomiciliary, outside the State of New York caused injury within the State. As to the first shipment of 300 barrels, the conversion occurred in New York assuming Fantis was entitled to the goods. If Standard took possession of its own goods, there was no conversion by it and Synergal’s actions in Greece did not deprive Standard of these 300 barrels. As to the remaining 900 barrels, the alleged conversion by Synergal occurred while the goods were in Greece. Of course, it is not axiomatic that in conversion, the tortious act and the tortious injury coalesce, and proper analysis of the applicability of the long-arm statute must perforce be based not on abstract principles, but on the particular circumstances of an individual case. The most essential condition is that there be an injury in New York. Addition of the 1966 amendment embodying CPLR 302 (subd [a], par 3) marked a legislative departure from the overly restrictive rationale of Feathers v McLucas (15 NY2d 443) and indicated the viability of the holding of the Illinois Supreme Court in Gray v American Radiator & Std. Sanitary Corp. (22 Ill 2d 432).

"Clause (ii) of subparagraph (3) was constructed by the Judicial Conference from several sources. It is perhaps the most important provision in the 1966 amendment. Whether a state may constitutionally assert jurisdiction over a nonresident defendant who performs acts outside the state resulting in consequences in New York has been the focus of much academic discussion * * * Some courts have found no constitutional impediment where the defendant can reasonably foresee that his out-of-state act will have an in-state consequence. See Gray v. American Radiator & Standard Sanitary Corp. * * * Others have boggled at the concept of foreseeability * * * Balancing these competing considerations, the new statute attempts to strike a compromise. A defendant who foresees consequences in New York will be held accountable for those consequences only where he 'derives substantial revenue from interstate or international commerce.’ * * * While the protections of the foreseeability rules are ephemeral * * * the safeguards built into the interstate or international character of the defendant’s operations are * * * reassuring” (McLaughlin, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR, C302:24). The test of foreseeability embodied in the statute is an objective one, to wit, whether the nondomiciliary, viewed as one endowed with reasonable prudence, should expect the tortious act which he commits to have consequences in New York (Allen v Auto Specialties Mfg. Co., 45 AD2d 331; see, also, Markham v Gray, 393 F Supp 163).

The instant appeal involves an alleged conversion out of State in the commercial area by a nondomiciliary which tortious act has consequences in New York. The nondomiciliary, it is alleged, possessed a monopoly or virtual monopoly at the relevant time over the sale and exportation of Greek feta cheese. Consequently, in dealing with Standard and Fantis, importers of foreign food and cheese items who are local competitors, the nondomiciliary, Synergal was in a unique position to control the competitive relationship between Fantis and Standard insofar as this type of cheese is concerned. Accordingly, the tortious injury to Standard in consequence of the conversion by Synergal produced ramifications in New York which were occasioned not by the mere fact that Standard had its principal office here, but by numerous additional facts. Applying the reasonable man standard in the sense of foreseeability to the actions of Synergal, it must be concluded on this record that long-arm jurisdiction over this nondomiciliary exists by virtue of CPLR 302 (subd [a], par 3, cl [ii]).

To reiterate, injury to Standard in New York was foreseeable by Synergal not merely because Standard is incorporated in and has its principal office in New York (cf. Friedr. Zoellner [N. Y.] Corp. v Tex Metals Co., 396 F2d 300), but because Synergal by virtue of its monopolistic control in its dealings with Standard and its New York competitor Fantis must be deemed to foresee consequences of its actions in New York. In light of Synergal’s substantial revenue from international commerce, undisputed for purposes of the motion to dismiss Standard’s third-party action, the aptness of viewing such actions by Synergal as a basis for long-arm jurisdiction is self-evident. We need not, therefore, concern ourselves with the propriety of the rationale of those Federal cases which opine that in commercial tort situations involving conversion, "the injury must be deemed to occur in the place where the defendant’s acts respecting the property are committed” (Chemical Bank v World Hockey Assn., 403 F Supp 1374, 1380; American Eutectic Welding Alloys Sales Co. v Dytron Alloys Corp., 439 F2d 428). However, it may be noted that these cases rely in part on Friedr. Zoellner (N. Y.) Corp. v Tex Metals Co. (supra), and betray an inordinate concern that CPLR 302 (subd [a], par 3) had its inception in the 1966 legislative response to the interpretation given CPLR 302 (subd [a], par 2) by the New York Court of Appeals in Feathers v McLucas (15 NY2d 443, supra). Viewing the statute as primarily aimed at negligence type situations involving personal injuries or property damage, the approach opted for by the afore-mentioned Federal cases is to distinguish commercial tort type situations, and insofar as conversion is concerned, to restrict in severe fashion the operative effect of the long-arm statute. It may well be that the protective features of New York’s long-arm statute regarding foreseeability and the deriving of substantial revenue from interstate or international commerce have been undervalued or unappreciated.¹ It suffices to state in the context of the present record that CPLR 302 (subd [a], par 3, cl [ii]) draws no distinction between commercial and noncommercial type situations.²

Synergal for the first time on appeal asserts that CPLR 302 (subd [a], par 3) is violative of the due process clause under the circumstances presented by this record and is thus constitutionally deficient.

"Statutes and ordinances are not unconstitutional in the abstract, so to speak, but are presumptively constitutional. Their unconstitutionality can be determined only in an action where the question is raised by a party aggrieved. [Citation] The question must be raised by a pleading or on the trial, or the right to raise the question is lost, for it cannot be raised for the first time on appeal” (Jahn v Berzon, 255 App Div 1023, 1024; see, also, Dodge v Cornelius, 168 NY 242, 244-24S).³

Reliance by Synergal on the forum selection clause in the contract between it and Standard is misplaced. The clause provides: "emphatically and without reservation, it is agreed upon by the two parties that for any eventual difference or discord of any nature and for whatever objections that may arise from the present agreement, the authorized court for the solution to the differences is the Court of Greece exclusively.” Although this clause would be applicable respecting a claim brought in contract, it has no application to Standard’s claim which sounds in the tort of conversion. The alleged conversion by Synergal subsequent to the contract constitutes an undisputed act.not arising out of the contract. Recognition that the contract created the property rights which were violated by Synergal’s conversion does not render indistinct the fact that the conversion is a dispute outside of that contract (see Hodom v Stearns, 32 AD2d 234; cf. Altshul Stern & Co. v Mitsui Bussan Kaisha, 385 F2d 158). We do not perceive the instant dispute between Standard and Synergal as one embraced within the intendment of the forum selection clause (see Reavis v Exxon Corp., 90 Misc 2d 980).

Further, the bargaining position of Synergal in determining whether to give effect to a contractual provision which ousts our courts from jurisdiction (see Kyler v United States Trotting Assn., 12 AD2d 874; see, also, Export Ins. Co. v Mitsui S. S. Co., 26 AD2d 436, 437). Under the circumstances as presented by the record, it does not appear that it would be right and proper to enforce the forum selection clause.

Accordingly, the order of the Supreme Court, New York County (Baer, J.), entered May 5, 1977, which denied the third-party defendant Synergal, Ltd.’s motion to dismiss the third-party complaint against it for, inter alia, lack of in personam jurisdiction, should be affirmed, with costs and with disbursements.

1 . "Professor Reese in a study prepared for the Judicial Conference, to be included in the Eleventh Annual Report of the Judicial Conference (1966), concluded 'that a state does not have constitutional authority to exercise jurisdiction over a nonresident who causes tortious injury within the state by an act or omission without the state unless the non-resident intended the act to have consequences within the state, or had reason to foresee that the act would have such consequences, or had such other Contacts with the state as would make it reasonable for the state to exercise jurisdiction over him’ ” (1 Weinstein-Korn-Miller, NY Civ Prac, par 302.03, n 23).

2 . Synergal’s alleged conversion of the 900 barrels of feta cheese not only resulted in the damages arising from the loss of that cheese, but may also be viewed as causing Standard to lose profits from the sales of Greek feta cheese in general, since delivery to Fantis, Standard’s local competition and the sole importer of such cheese for the period involved, assured that Standard would have no sales in this respect for that period. In this light the conversion directly injured Standard in its economic relations in New York.

3 . Synergal’s argument, viewed as one asserting that the long-arm statute is unconstitutional as applied to it, is waived by the failure to assert it at Special Term. However, were we to consider such argument, we would find it to be without merit (see 1 Weinstein-Korn-Miller, NY Civ Prac, par 302.03).