State of New York, Appellant, v. Vayu, Inc., Respondent.
No. 2
State of New York Court of Appeals
February 14, 2023
This opinion is uncorrected and subject to revision before publication in the New York Reports.
Dustin J. Brockner, for appellant.
Respondent precluded.
GARCIA, J.:
Defendant Vayu, Inc., a Delaware corporation headquartered in Michigan that designs and manufactures unmanned aerial vehicles, sold two UAVs to the State University of New York at Stony Brook for delivery in Madagascar. Following a dispute regarding
When assessing whether there is personal jurisdiction over a defendant pursuant to the “transacts any business” clause of New York‘s long-arm statute, courts must ask “whether what the defendant did in New York constitutes a sufficient ‘transaction’ to satisfy the statute” (David D. Siegel & Patrick M. Connors, New York Practice § 86 [6th ed, Dec 2022 Update] [emphasis added]). Examination of a defendant‘s actions in New York is primarily a fact-based inquiry that requires an assessment of whether the non-domiciliary‘s activities in the state were purposeful (see Paterno v Laser Spine Inst., 24 NY3d 370, 376 [2014]). “Purposeful activities,” this Court has explained, are “volitional acts by which the non-domiciliary ‘avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws’ ” (id., quoting Fischbarg v Doucet, 9 NY3d 375, 380 [2007]). “[A]lthough determining what facts constitute ‘purposeful availment’ is an objective inquiry, it always requires a court to closely examine the defendant‘s contacts for their quality” (Licci v Lebanese Can. Bank, SAL, 20 NY3d 327, 338 [2012]). We conclude that Vayu‘s actions, outlined below, were purposeful and amounted to the transaction of business within this State.
In 2013, Vayu‘s Chief Executive Officer, Daniel Pepper, contacted Dr. Peter Small, who was not yet affiliated with SUNY Stony Brook, about using UAVs to transport laboratory samples. It is unclear whether Small was in New York at the time. Two years later, in 2015, while working as a professor of medicine and director of the Global Health Institute at SUNY Stony Brook, Small contacted Pepper seeking a business relationship between Vayu and SUNY Stony Brook for the development and use of UAVs to deliver medical supplies to remote areas in underdeveloped countries. From 2015 through 2017, Pepper communicated with Small and other representatives of SUNY Stony Brook through telephone calls to SUNY Stony Brook phone numbers, emails to SUNY Stony Brook email addresses, and later through a face-to-face meeting in New York. These discussions concerned both the development of UAVs to be sold to SUNY Stony Brook, as well as broader partnership opportunities. In the summer of 2016, Vayu and SUNY Stony Brook worked together to submit a grant application to the United States Agency for International Development (USAID), in which Vayu described SUNY Stony Brook as a “partner” and identified Small as a key member of its “team.” The submission also outlined a two-year budget with SUNY Stony Brook receiving approximately $85,000 per year for costs such
In September 2016, SUNY Stony Brook purchased two UAVs from Vayu for $25,000 each. Vayu sent an invoice to SUNY Stony Brook at a post office box located in New York, and Vayu accepted a wire payment from SUNY Stony Brook that originated in New York. Attached to the invoice was a note from a Vayu employee stating “[w]e can discuss down the line whether [Small] would like these shipped to NY, or on [SUNY Stony Brook‘s] behalf to Madagascar.” The drones were later shipped directly to Madagascar from Michigan. By November 2016, however, problems arose with the operation of the two UAVs. Vayu employees and SUNY Stony Brook representatives attempted to resolve the issues by telephone and email, and in September 2017, Pepper offered to meet Small in New York. At that meeting, Pepper and Small agreed to terms for moving forward, which were memorialized via email: SUNY Stony Brook would bear the cost of shipping the UAVs from Madagascar to Michigan; Vayu would provide replacement UAVs that met SUNY Stony Brook‘s specifications; and Vayu would train one of SUNY Stony Brook‘s employees to operate the UAVs. The two parties also discussed an ongoing business relationship and future opportunities between Vayu and SUNY Stony Brook. In November 2017, SUNY Stony Brook returned the two UAVs to Vayu in Michigan. Vayu failed to replace them or provide a refund.
In granting Vayu‘s motion to dismiss, Supreme Court emphasized that it was Small at SUNY Stony Brook who reached out to Pepper for the purpose of creating the business relationship at issue and described later communications between Vayu and representatives of SUNY Stony Brook as “predominantly responsive in nature.” Similarly, the Appellate Division majority concluded that the relationship was a single transaction that occurred after Small began work at SUNY Stony Brook and contacted Vayu‘s CEO (State of New York v Vayu, Inc., 195 AD3d 1337, 1340 [3d Dept 2021]). The court opined that it was
We have noted that ” ‘CPLR 302 is a single-act statute requiring but one transaction—albeit a purposeful transaction—to confer jurisdiction in New York’ ” (Parke-Bernet Galleries, Inc. v Franklyn, 26 NY2d 13, 17 [1970], quoting Joseph McLaughlin, Supplementary Practice Commentary to CPLR 302, McKinney‘s Cons. Laws of N.Y, Book 7B [1969 Cum Supp], at 129-130; see Deutsche Bank Sec., 7 NY3d at 71). In any event, the communications here relate not only to the sale of the two drones, but also to a continuing business relationship between Vayu and SUNY Stony Brook (see George Reiner & Co., Inc. v Schwartz, 41 NY2d 648, 653 [1977]). Moreover, this is not a case where plaintiff responded to a “passive website[]” (see Paterno, 24 NY3d at 377), but rather involved an active dialogue between principals based on earlier personal contact. And, although a defendant‘s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative (see Grimaldi v Guinn, 72 AD3d 37, 51 [2d Dept 2010] [“(I)t is not necessarily who initiated contact that is determinative, but rather, the nature and quality of the contacts and the relationship established as a result“]). Moreover, contrary to the dissent‘s characterization of this arrangement as a unilateral “plan” conceived by Small (dissenting op at 5), the email communications between the two
The Appellate Division majority also discounted the meeting in New York because “[t]he visit by the CEO to New York in 2017 was for the purpose of discussing issues regarding the completed purchase of the UAVs, rather than seeking additional business from SUNY Stony Brook or other entities in New York” (195 AD3d at 1340 [emphasis in original]). This conclusion was also incorrect. Although at the time of the 2017 meeting in New York, SUNY Stony Brook had already accepted delivery of the allegedly defective UAVs, that meeting led to modification of the agreement, including the agreement to replace the drones. In its cause of action for breach of contract, plaintiff alleged that, after acknowledging the defects in the drones, defendant breached the terms governing replacement. The circumstances here, involving actions undertaken pursuant to an ongoing business relationship, are distinguishable from those in Paterno, where the alleged tort—malpractice based on a medical procedure performed by defendant in Florida—had already taken place prior to certain contacts plaintiff claimed established the requisite relationship with New York (24 NY3d at 379).
We have made clear that “the nature and purpose of a solitary business meeting conducted for a single day in New York may supply the minimum contacts necessary to
The second prong of New York‘s long-arm statute, requiring the cause of action to arise from a defendant‘s relevant business transaction in the state, is easily met. Plaintiff‘s claims are based on the sale of the two UAVs, and Vayu‘s contacts in New York were directly related to efforts to resolve the dispute over operability of the purchased UAVs (see Vayu, 195 AD3d at 1342 [Egan Jr., J., dissenting]). Thus, “[t]here is an articulable nexus or substantial relationship between defendant‘s New York activities and the parties’ contract, defendant‘s alleged breach thereof, and potential damages” (D & R Glob. Selections, S.L. v Bodega Olegario Falcon Pineiro, 29 NY3d 292, 299 [2017]).
Those requirements are satisfied here. Vayu sought, negotiated, and then entered a contractual relationship with a New York State entity. Vayu furthered that relationship through numerous telephonic and email communications with SUNY Stony Brook and continued negotiations over terms of the deal when Vayu‘s CEO visited New York and met with Small in 2017. Vayu‘s 2016 grant application to USAID, describing SUNY Stony Brook as a “partner” and projecting a two-year budget for SUNY Stony Brook‘s costs related to delivery of an additional 10 UAVs, further demonstrates Vayu‘s understanding of this relationship with SUNY Stony Brook as ongoing and connected to New York. In
The dissent misconstrues the nature of the agreement between the parties and, as a result, misapplies our law. The voluminous contacts between Vayu and SUNY Stony Brook over a two-year period were not merely “responsive in nature” (dissenting op at 7), but rather ongoing negotiations over the original terms and subsequent modification of a contractual relationship. The dissent also mischaracterizes the meeting in New York, which was not simply to “assuage” concerns (dissenting op at 2, 11[describing the visit as discussing “complaints“]), but to modify the terms of their agreement and discuss ongoing collaboration. In fact, the new terms agreed upon are at issue in this lawsuit (see Martin v Peyton, 246 NY 213, 218 [1927] [“An existing contract may be modified later by subsequent agreement, oral or written“]). Likewise, the refrain that the drones, which were intended for use in SUNY Stony Brook‘s initiative to provide health solutions in developing countries, were for the “benefit and use of [Madagascar‘s] people” (dissenting op at 2, 15 [drones were designed to “serv[e] the needs of non-New Yorkers“]), confuses the concept of potential third-party beneficiaries of a commercial agreement with the long-arm jurisdictional inquiry into defendant‘s activities in New York (see e.g. Fourth Ocean Putnam Corp. v Interstate Wrecking Co., 66 NY2d 38, 45 [1985] [discussing third-party beneficiary rights to enforce a contract]). And, of course, the fact that persons located in remote areas of Madagascar might benefit from delivery of much-needed medical supplies by SUNY Stony Brook‘s drones does not mean that SUNY Stony Brook itself would reap
Accordingly, the order of the Appellate Division should be reversed, with costs, and Vayu‘s
Plaintiff‘s employee—a professor at Stony Brook University and the director of its Global Health Institute—contacted defendant‘s Michigan-based chief executive officer to purchase two unmanned aerial vehicles, commonly known as “drones,” to be delivered
These contacts are insufficient under
A.
“The ultimate burden of proving a basis for personal jurisdiction rests with the party asserting jurisdiction” (Fanelli v Latman, 202 AD3d 758, 759 [2d Dept 2022], citing Fischbarg v Doucet, 9 NY3d 375, 381 n 5 [2007], and Aybar v Aybar, 169 AD3d 137, 142 [2d Dept 2019], affd 37 NY3d 274 [2021]). Thus, where a defendant, as in this case, moves to dismiss a proceeding for lack of personal jurisdiction pursuant to
B.
The first prong requires an objective inquiry into whether “[a] non-domiciliary defendant[,] . . . ‘on [its] own initiative[,] . . . project[ed] [itself] into this state to engage in a sustained and substantial transaction of business’ ” (D&R Global, 29 NY3d at 298, quoting Paterno v Laser Spine Inst., 24 NY3d 370, 377 [2014]; see Rushaid, 28 NY3d at 323). “[A] single transaction in New York, out of which the cause of action has arisen, may satisfy the requirement of the transaction of business provision” (Longines-Wittnauer Watch Co. v Barnes & Reinecke, 15 NY2d 443, 456 [1965]). However, “[t]he primary consideration [under the first prong] is the quality of the non-domiciliary‘s New York contacts” (D&R Global, 29 NY3d at 298, citing Fischbarg, 9 NY3d at 380). While a non-domiciliary need not physically “enter[ ] New York” (Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 [1988]), its transactions will be deemed sufficiently purposeful only where “[the] defendant, through volitional acts, ‘avails itself of the privilege of conducting activities within the forum [s]tate, thus invoking the benefits and protections of its laws’ ” (Fischbarg, 9 NY3d at 380, quoting McKee Elec. Co. v Rauland-Borg Corp., 20 NY2d 377, 382 [1967]). “[P]urposeful availment occurs when the non-domiciliary ‘seeks out and initiates contact with New York, solicits business in New York, and establishes a
C.
Plaintiff failed to establish that defendant “transacted any business within” New York for purposes of
Defendant‘s conduct here contrasts with the defendant‘s conduct in Deutsche Bank Sec., Inc. v Montana Bd. of Invs. (7 NY3d 65 [2006]). There, this Court held that an ongoing business relationship coupled with bilateral negotiations satisfied the transacting business prong of
Second, defendant‘s contacts with New York as they related to the subject matter of this dispute—the functioning of the drones—were primarily “responsive in nature” (Paterno, 24 NY3d at 378). In George Reiner & Co. v Schwartz, the Court concluded that the defendant was subject to personal jurisdiction because he had purposefully entered New York seeking employment, and then “was physically present in New York at the time the contract, establishing a continuing relationship between the parties, was negotiated and made and, the contract, made in New York, was the transaction out of which the cause of action arose” (41 NY2d 648, 653 [1977]). The Court contrasted that visit—which served as the basis for personal jurisdiction—with the one-day visit to New York by the defendant‘s agent in McKee (20 NY2d 377), which fell short of the required level of in-state activity. “[I]n McKee there was merely a casual attempt by defendant‘s representative to look into or smooth out difficulties between plaintiff and plaintiff‘s customers” (George Reiner & Co., 41 NY2d at 654). The Court also explained that “[t]he McKee court expressed valid concern that, were the visit there to serve as a sufficient basis for jurisdiction, then ‘every corporation whose officers or sales personnel happen to pass the
Defendant‘s actions here are more analogous to those of the defendant in McKee than in George Reiner & Co. in that defendant‘s communications regarding travel to Madagascar to attempt to fix the drones and the CEO‘s visit to New York were parts of an attempt to “smooth out difficulties” with plaintiff regarding an already completed transaction (id.). Unlike George Reiner & Co., where the defendant entered New York to transact business—i.e., enter into a contract—with plaintiff (see id. at 653), here, all business was conducted remotely. Both parties entered into an agreement with the understanding that they could perform their contractual obligations without defendant or its products ever entering New York. The CEO‘s visit to New York to address compliance with the contract, as in McKee, occurred after the parties had already entered into the contractual relationship that is at the heart of this dispute.
II.
The majority concludes that plaintiff met its burden based on (1) the initial transaction between the parties; (2) the ongoing communications between the parties with the intent of forming a continuing relationship; and (3) the meeting between the professor and the CEO in New York (see majority op at 3-5). None of those grounds are adequate, separately or in the aggregate, to support personal jurisdiction.
First, defendant did not enter or project itself into New York to solicit plaintiff‘s business through its communications leading up to the initial transaction. The Court has
Defendant‘s attempt to “establish a substantial ongoing business relationship” with plaintiff (majority op at 5, citing Fischbarg, 9 NY3d at 382-383) also cannot support personal jurisdiction. No communications on this subject occurred in New York or led to the formation of a contract in New York. As they did during the original transaction, the parties contemplated engaging in a business relationship focused on public health issues in Madagascar and other foreign nations.3 Plaintiff failed to establish how those discussions led to a business relationship resulting in the defendant‘s transaction of business within New York. Additionally, plaintiffs claims were not based on these efforts. Negotiations to create an ongoing business relationship cannot support a claim of personal jurisdiction for a previous transaction that has no bearing on that potential future relationship.4
Finally, defendant‘s one-time visit to New York to discuss with the professor complaints about the defective drones is insufficient to establish personal jurisdiction. Contrary to the majority‘s view, the meeting between the professor and the CEO in New York did not “designedly and materially forward[ ] the negotiation and performance of the contract” (majority op at 8 [internal quotation marks omitted], quoting Dulman v Potomac Baking Co., 85 AD2d 676, 677 [2d Dept 1981] [Titone, J., on panel]). Indeed, the majority‘s reliance on Dulman is misplaced because there, the defendant traveled to New York to inspect and purchase an industrial oven before the sale and to hasten performance of the contract (see 85 AD2d at 676-677). Here, the defendant‘s CEO traveled to New York after defendant had purportedly breached its contract with plaintiff.
Moreover, plaintiff alleges in its complaint that defendant breached the contract between the parties by (1) “provid[ing]” drones “in a defective, damaged, non-conforming, [and] unsatisfactory condition” that were “otherwise unfit for their intended purpose,” and (2) “fail[ing]” to replace the non-conforming [drones] within a reasonable time.” The premise for the majority‘s conclusion that the purpose of the parties’ in-person meeting was “to modify the terms of their agreement” (majority op at 10) is unclear and unsupported by the plaintiff‘s assertions. Plaintiff did not—and has never—alleged that the parties
III.
Even if defendant‘s actions constituted the transaction of business within New York under
“Federal due process requires first that a defendant have minimum contacts with the forum state such that the defendant should reasonably anticipate being haled into court there, and second, that the prospect of having to defend a suit in New York comports with traditional notions of fair play and substantial justice” (D&R Global, 29 NY3d at 300 [cleaned up]; accord World-Wide Volkswagen Corp. v Woodson, 444 US 286, 297 [1980]; International Shoe Co. v Washington, 326 US 310, 316 [1945]; LaMarca, 95 NY2d at 216).
Under the “minimum contacts” analysis, this Court evaluates whether a defendant has purposefully availed itself of the privilege of conducting business within New York (see D&R Global, 29 NY3d at 300; Rushaid, 29 NY3d at 331; LaMarca, 95 NY2d at 217). “The contacts must be the defendant‘s own choice and not ‘random, isolated, or fortuitous’ ” (Ford Motor Co. v Montana Eighth Judicial Dist. Court, 592 US —, —, 141 S Ct 1017, 1025 [2021], quoting Keeton v Hustler Magazine, Inc., 465 US 770, 774 [1984]). Moreover, “it is the defendant‘s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over [it]“; “a defendant‘s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction” (Walden v Fiore, 571 US 277, 285-286 [2014]; accord Burger King Corp. v Rudzewicz, 471 US 462, 478 [1985]; Rush v Savchuk, 444 US 320, 332 [1980]; Kulko v Superior Court of Cal., City and County of San Francisco, 436 US 84, 93 [1978]). For the same reasons defendant‘s conduct fails to establish jurisdiction under our long arm statute (discussed at length, supra), the conduct also fails to satisfy this prong of the due process standard. In brief, plaintiff‘s agent, not defendant, initiated the sales agreement. Crucially,
Nor would New York‘s exercise of personal jurisdiction over defendant comport with traditional notions of fair play and substantial justice. It would be unreasonable to require defendant to litigate the underlying claims in our state given that defendant has no existing business relationship with plaintiff, did not visit New York to negotiate or finalize the sales purchase, and this contract dispute involves drones sent directly to Madagascar for the use and benefit of the people on that island (see D&R Global, 29 NY3d at 300 [noting that a defendant must show that “the exercise of jurisdiction is unreasonable“], citing LaMarca, 95 NY2d at 218). The applicable rules guiding this step of the analysis
IV.
This case involves a purchase by telephone and email of a product manufactured outside of New York, designed to specifications serving the needs of non-New Yorkers, and sent directly from the factory floor to Madagascar. On these facts, defendant did not transact business within New York but merely entered a contract with a New York client for a product sent to and used in another country. Therefore, I agree with both courts below that New York lacks personal jurisdiction over defendant for the claims plaintiff asserted in this action. Plaintiff could avoid future personal jurisdiction disputes by doing what it failed to do here: ensure that its employees go through the proper procurement process6 and, for good measure, require a forum selection clause in its contracts if it wishes to engage in business dealings with similarly situated non-domiciliary potential business partners.
Decided February 14, 2023