Hitachi Data Sys. Credit Corp. v. Precision Discovery, Inc.
Docket: 17-CV-6851 (SHS)
Court: District Court, S.D. Illinois; September 7, 2018; Federal District Court
Precision has not adequately demonstrated that general jurisdiction over Cold Creek and Hitachi Vantara aligns with due process requirements following the Daimler case, despite assuming their business activities in New York satisfy New York law. Cold Creek is incorporated and has its principal place of business in Colorado, while Hitachi Vantara is incorporated in Delaware and based in California. Precision's allegations regarding Cold Creek primarily involve its business dealings with Precision, which are insufficient to establish the "exceptional case" needed for general jurisdiction under Daimler. The claims regarding Hitachi Vantara, although more substantial, such as its registration and office in New York, still fail to demonstrate that its activities are significant enough to qualify as "exceptional." The Second Circuit's precedent indicates that mere systematic and continuous contacts do not suffice for general jurisdiction when a corporation is not incorporated or headquartered in the state. Additionally, Precision's vague assertion regarding Hitachi Vantara’s extensive business in New York does not contribute to establishing an exceptional connection necessary for general jurisdiction. Consequently, asserting general jurisdiction over Hitachi Vantara would breach the due process principles defined in Daimler.
Specific jurisdiction over Hitachi Vantara and Cold Creek in New York is not established, as they lack a substantial connection to the state. While neither defendant is considered at home in New York, Precision must show that the defendants' conduct is linked to the forum, as per due process requirements. The Supreme Court has clarified that the defendants' actions, not those of the plaintiff, must create this connection, and contacts must be directly with New York, rather than with its residents. Precision's claims, largely based on its New York headquarters, do not suffice; the plaintiff cannot be the sole link. Precision's only alleged New York activity is the payment of invoices, which is irrelevant to the jurisdictional analysis since it pertains to Precision's conduct, not that of the defendants. Furthermore, unchallenged declarations from Hitachi Vantara and Cold Creek assert that relevant interactions primarily occurred in Colorado, where all involved parties have offices, and where key figures related to the case operated. Thus, the necessary criteria for specific jurisdiction are not met.
The declarations indicate that the equipment in question was delivered to Precision's Colorado office rather than its New York headquarters, and that all communications and billings were processed in Colorado. Precision argues for specific jurisdiction under N.Y. C.P.L.R. 302(a), which allows for jurisdiction over non-domiciliaries who commit tortious acts outside the state but cause injury within it, provided they expect such consequences and derive substantial revenue from commerce. Precision claims financial injury occurred at its New York headquarters and that the defendants, Cold Creek and Hitachi Vantara, were aware their actions would harm Precision in New York. However, Precision fails to acknowledge that, in addition to statutory grounds, the exercise of jurisdiction must meet constitutional due process standards. The Supreme Court's ruling in Walden v. Fiore requires that the defendant's conduct must establish a substantial connection with the forum state for jurisdiction to be valid. The Second Circuit emphasizes that relevant conduct related to the lawsuit must have occurred in the forum. Here, the alleged fraudulent actions by Hitachi Vantara and Cold Creek occurred in Colorado, with no suit-related conduct in New York. Although Precision does not argue for jurisdiction under the "effects test," such an argument would be unsuccessful since mere knowledge of Precision's New York location does not suffice to establish jurisdiction. Thus, the only connection to New York is the defendants' knowledge of Precision's headquarters, which is inadequate for personal jurisdiction in New York.
Cold Creek and Hitachi Vantara's potential foreseeability of harm in New York due to interactions with Precision in Colorado does not suffice to establish specific personal jurisdiction. Specific jurisdiction requires a direct relationship between a defendant's forum contacts and the alleged wrongdoing, which Precision has not demonstrated for either defendant. Although Hitachi Vantara has some business presence in New York, there is no alleged connection between these activities and the claims against them. The court finds that neither defendant has sufficient ties to New York to warrant general or specific personal jurisdiction.
Precision also claims jurisdiction based on a civil RICO statute allowing nationwide service of process. However, since Precision has not sufficiently stated a valid civil RICO claim, this argument fails. The Second Circuit clarifies that nationwide jurisdiction under the civil RICO statute only applies if personal jurisdiction based on minimum contacts is established for at least one defendant. As Cold Creek and Hitachi Vantara contest the validity of the RICO claim, if it is dismissed, the basis for nationwide personal jurisdiction would also be invalidated.
Precision has failed to adequately allege a civil RICO claim against Hitachi Vantara and Cold Creek primarily due to insufficient allegations of a pattern of racketeering activity. The court determined that because Precision did not establish this pattern, the arguments regarding the existence of an enterprise-in-fact need not be considered. To sufficiently plead a RICO pattern, Precision must allege either closed-ended or open-ended continuity. Closed-ended continuity requires a series of related predicates over a substantial period, generally interpreted as at least two years in the Second Circuit. Precision's allegations, which span from June 2016 to September 2016, do not meet this duration, as they indicate a time frame of less than one year for the alleged mail and wire fraud activities.
Although Precision attempts to extend the timeline by referencing earlier fraudulent activities dating back to January 2012, these claims lack specificity and do not clearly identify any mail or wire fraud incidents, failing to satisfy the particularity requirement of Rule 9(b). The assertion that the racketeering activity existed prior to the sham transaction is deemed conclusory and unsupported by specific facts, further undermining Precision's claim.
Precision's allegations of RICO predicates are insufficient, as they span only several months, failing to meet the two-year continuity requirement necessary for establishing a pattern of racketeering activity. The court concludes that there is no reason to deviate from this standard due to the case's relative simplicity. While Precision argues that its claims indicate an ongoing threat of criminal activity, this assertion is merely a restatement of case law and lacks substantive support. Furthermore, Precision's claim that the fraudulent activities were a regular part of business operations for Cold Creek, Hitachi Vantara, and HDSCC is undermined by the limited nature of the alleged fraudulent acts, which involved only Schedule J over a short timeframe. Consequently, both open-ended and closed-ended continuity are not adequately established, precluding the existence of a racketeering pattern.
Additionally, due to a lack of personal jurisdiction in New York, any claims against Hitachi Vantara and Cold Creek are dismissed under Rule 12(b)(2). Regarding HDSCC, Precision's counterclaims for fraudulent inducement and fraudulent misrepresentation also fail. Precision alleges that HDSCC misrepresented the suitability of leased equipment and falsely entered an installation certificate, leading to reliance on these misrepresentations. However, to succeed under New York law for these claims, Precision must prove that HDSCC made a material false statement with intent to defraud, that Precision reasonably relied on this statement, and that damages resulted from this reliance. The court finds that the operative pleading does not satisfy these legal requirements, leading to the dismissal of the counterclaims against HDSCC.
HDSCC argues that Precision has inadequately alleged elements necessary for its fraud-based counterclaims and that the "hell or high water" clause in their lease agreement prevents such claims. The Court agrees, stating that the lease's explicit disclaimer indicates that HDSCC made no representations about the suitability of the leased equipment, which undermines Precision's assertion of reasonable reliance on any misrepresentation. Consequently, claims of fraudulent inducement and fraudulent misrepresentation are dismissed. The January 2012 Lease Agreement and Schedule J, which together define the lease terms, expressly state that HDSCC does not warrant any characteristics of the equipment. Under New York law, when a party disclaims reliance on representations, this disclaimer negates any subsequent claims of fraud related to those representations. Precision's assertion of being defrauded based on a misrepresentation about the equipment's suitability is thus barred by the disclaimer. Although Precision argues that reasonable reliance is a factual issue requiring discovery, the cited case law does not involve a similar express disclaimer and is therefore not applicable. Courts under New York law have accepted such disclaimers to dismiss fraud claims at the motion to dismiss stage.
Precision argues that the express disclaimer in the 2012 Lease Agreement does not apply to the Schedule J equipment because it is not included in Schedule J. However, Schedule J explicitly incorporates the 2012 Lease Agreement, establishing that the two documents collectively represent the lease of the Schedule J equipment. Precision also asserts that under Article 2A of the UCC, it is entitled to warranties from the Vendor provided to HDSCC, the Lessor, and claims that its fraud allegations should not be dismissed as these warranties have not been presented to the Court. To adequately plead a fraud claim under Federal Rule of Civil Procedure 9(b), Precision must detail the fraudulent statements, identify the speaker, specify when and where the statements were made, and explain their fraudulent nature. Precision fails to provide this specificity regarding any vendor warranty. Additionally, although it mentions an installation certificate in its fraud claims, it does not argue that the endorsement by Howard Holton supports a fraud claim against HDSCC, as Holton is an employee of Precision and no false statement by HDSCC is alleged. Consequently, the court finds that Precision has not sufficiently pleaded the elements necessary for fraud, leading to the dismissal of its counterclaims for fraudulent misrepresentation and inducement under Rule 12(b)(6).
Regarding the civil RICO claims, the court previously ruled that Precision did not adequately allege continuity or a pattern of racketeering activity, leading to the dismissal of these claims against HDSCC. For the civil conspiracy counterclaim, HDSCC argues it must be dismissed because Precision has not alleged an underlying tort. Precision contends it meets the requirement by asserting its fraud and civil RICO claims; however, since both have already been dismissed, there is no underlying tort, resulting in the dismissal of the civil conspiracy counterclaim as well under Rule 12(b)(6).
Precision alleges that HDSCC breached the implied covenant of good faith and fair dealing under New York law by inducing Precision to agree to a lease (Schedule J) with knowledge that the equipment provided would be unsuitable. For a breach of this covenant, a party's actions must violate an obligation presumed intended by the parties. However, Precision did not demonstrate that HDSCC violated any express obligations of the lease or that the contract guaranteed the suitability of the equipment, especially given an explicit disclaimer stating no such promise was made. Thus, the allegation does not constitute a breach of the implied covenant, leading to the dismissal of this claim.
Additionally, Precision's conversion claim, based on the assertion that HDSCC wrongfully retained several hundred thousand dollars paid as rent due to alleged fraudulent inducement, also fails. To establish conversion, Precision must show a possessory right to the property and that HDSCC exercised unauthorized control over it. The court noted that Precision's claims of fraud had already been dismissed, and no other basis was provided to suggest HDSCC acted improperly in accepting the rent. Consequently, the conversion claim was also dismissed.
Lastly, Precision's unjust enrichment claim, which asserts that HDSCC was unjustly enriched by the rent payments, was deemed a reiteration of the previously dismissed claims of fraudulent inducement and misrepresentation, and thus was similarly dismissed.
Unjust enrichment is not a viable cause of action when it merely replicates or replaces existing contract or tort claims, as established by the New York Court of Appeals in Corsello v. Verizon New York, Inc. Claims of unjust enrichment are only permissible when no actionable wrongs against a defendant exist. In this case, Precision's unjust enrichment claim mirrors its other tort and breach of contract allegations, specifically regarding payment for unsuitable equipment and a falsified installation certificate. Consequently, the unjust enrichment claim is deemed duplicative and must be dismissed.
The court also granted motions to dismiss from Cold Creek and Hitachi Vantara regarding all third-party claims against them, as well as HDSCC's motion to dismiss all counterclaims. Additionally, the court expressed skepticism about the sufficiency of Precision's jurisdictional allegations under N.Y. C.P.L.R. 302(a), noting that economic damages alone do not establish direct injury for jurisdiction purposes and that financial consequences occurring in New York from events outside the state do not suffice for jurisdiction. The court emphasized that exercising specific jurisdiction based on these grounds would violate constitutional due process principles.
Precision's request for jurisdictional discovery was denied, as it failed to specify what evidence it would seek or how such evidence would resolve the deficiencies in its jurisdictional claims. HDSCC highlighted a "hell or high water clause" in the lease agreement, affirming that the lessee's payment obligations are unconditional and not subject to any defenses or claims.
