Smehlik v. Athletes and Artists, Inc.
1994 WL 494666, 1994 U.S. Dist. LEXIS 12766, 861 F. Supp. 1162 (1994)
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Rule of Law:
For purposes of venue under 28 U.S.C. § 1391(c), a corporate defendant is deemed to reside in any judicial district where its contacts would be sufficient to subject it to personal jurisdiction under a federal due process analysis, as if that district were a separate state, irrespective of the state's long-arm statute.
Facts:
- Richard Smehlik, a Czechoslovakian hockey player, was drafted by the Buffalo Sabres in 1990.
- On August 28, 1990, while in Czechoslovakia, Smehlik signed an exclusive representation agreement with Athletes and Artists ('A & A'), a New York corporation with its principal place of business in New York, New York.
- The agreement required A & A to negotiate professional hockey contracts for Smehlik with the Buffalo Sabres, whose offices are in the Western District of New York.
- From 1990 until April 1992, an A & A employee conducted contract negotiations on Smehlik's behalf with the Sabres' general manager entirely via telephone and fax from New York City to Buffalo.
- Smehlik alleges that an A & A representative made specific oral misrepresentations to induce him to sign the contract, such as promising to secure a contract for the 1991/92 season and arrange for his participation in the Sabres' 1991 training camp.
- In April 1992, Smehlik sent a letter to A & A stating he was terminating the agreement.
- In August 1992, Smehlik hired a new agent and entered into a contract with the Buffalo Sabres.
Procedural Posture:
- On May 10, 1993, Athletes and Artists ('A & A') sued Richard Smehlik for breach of contract in New York State Supreme Court, New York County (a state trial court).
- On June 15, 1993, Smehlik filed an answer asserting affirmative defenses in the state court action.
- On the same day, Smehlik filed the instant action against A & A in the U.S. District Court for the Western District of New York.
- A & A filed a motion to dismiss the federal complaint based on improper venue, abstention in favor of the state court action, and failure to state a claim.
- The District Court initially dismissed Smehlik's negligence and fraud claims but granted him leave to replead the fraud claim.
- Smehlik filed an amended complaint, and A & A renewed its motion to dismiss on the grounds of improper venue and abstention, and also moved to dismiss the repleaded fraud claim.
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Issue:
Under 28 U.S.C. § 1391(c), is venue proper in a federal district where a corporate defendant, without being physically present, purposefully directed its activities at a resident of that district, and those contacts are sufficient to satisfy federal due process standards for personal jurisdiction?
Opinions:
Majority - Curtin, J.
Yes. Venue is proper in the Western District of New York because a simple federal due process analysis shows that A & A purposefully directed its activities towards a resident of this district, creating sufficient minimum contacts. The court reasoned that under 28 U.S.C. § 1391(c), the correct approach for determining corporate residence in a multi-district state is to apply a federal due process analysis as if the district were a separate state, without reference to the state's long-arm statute. A & A's numerous telephone and fax communications with the Buffalo Sabres constituted purposeful direction of its activities into the district, and the litigation arose directly from those contacts. Therefore, A & A could reasonably anticipate being haled into court in the Western District of New York, and exercising jurisdiction comports with 'fair play and substantial justice.' The court also declined to abstain under the Colorado River doctrine, finding that the six-factor test weighed heavily in favor of exercising federal jurisdiction. Finally, the court denied the motion to dismiss the fraud claim, finding Smehlik had adequately pleaded misrepresentations that could be considered distinct from the contract's terms or, alternatively, were promises made with a preconceived intent not to perform, which under a split in New York law, could potentially support a fraud claim.
Analysis:
This decision clarifies the interpretation of the corporate venue statute, 28 U.S.C. § 1391(c), for multi-district states, establishing that a federal due process 'minimum contacts' analysis is the sole inquiry, simplifying the process by removing consideration of state long-arm statutes. This lowers the bar for establishing venue against corporate defendants, making it easier to sue them in any district where they have purposefully directed activities, even without a physical presence. The case also reinforces the high standard for federal court abstention under the Colorado River doctrine, underscoring the federal courts' 'virtually unflagging obligation' to exercise the jurisdiction given to them. The court's analysis of the fraudulent inducement claim highlights a key ambiguity in New York law, providing a useful illustration for students on how a split in state-level authority can prevent dismissal at the pleading stage in federal court.
