Opinion ID: 727997
Heading Depth: 2
Heading Rank: 2

Heading: Arising out of Business Transacted in New York

Text: 21 We turn next to the question of whether the claim here arises from the licensees' business transactions in the forum. A claim arises out of a defendant's transaction of business in New York when there exists 'a substantial nexus' between the business transacted and the cause of action sued upon. Sacody Technologies, 862 F.Supp. at 1155 (citing Hoffritz, 763 F.2d at 60). Appellants argue that the claim here is inherently bound up with the licensees' business transactions in New York because all business in New York is conducted pursuant to the allegedly breached licensing agreements. The district court rejected this argument, holding instead that the sole cause of the dispute was AVIS's acquisition and operation of the Agency businesses within the licensee areas outside of New York. We disagree with the district court. 22 Two elements give rise to a breach of contract claim: (i) a contract between the parties and (ii) an act allegedly in violation of that agreement. Both are necessary elements of the claim; neither is sufficient by itself. Thus, the licensees' breach of contract claim arises out of both AVIS's acquisition of the Agency Business and the licensing agreement itself. Contrary to the district court's assertion that the existence of the contract is one step removed from the basis of the present dispute, the existence of the contract is at its heart. 23 In Hoffritz we rejected the notion that a claim based on an alleged breach of contract that occurs outside of New York cannot be said to arise out of transactions in the forum. In that case, the plaintiff, a New York corporation, alleged that a Georgia franchisee had breached the franchise agreement, which had been partially negotiated in New York. We held that even though the complaint alleged a breach based on conduct in Georgia, the action ar[ose] directly from alleged breaches of the franchise agreement  and thus from business transacted in New York. 763 F.2d at 59. Because the present declaratory judgment action seeks an interpretation of the licensing agreements pursuant to which all of the licensees' on-going New York business is conducted, this claim arises out of defendants' transactions with the forum. See id., at 59; see also George Reiner, 41 N.Y.2d at 653, 394 N.Y.S.2d 844, 363 N.E.2d 551 (contract establishing a continuing relationship between the parties is a transaction giving rise to a breach of contract action). But see Martin E. Segal Co. v. Barton, 612 F.Supp. 935 (S.D.N.Y.1985) (plaintiff-employer's claim that defendant violated non-compete agreement did not arise out of defendant's visits to New York). 24 The posture of this case as a defensive declaratory judgment action does not alter our analysis. It is true that in Beacon Enterprises we expressed doubt whether long-arm jurisdiction should be asserted in defensive declaratory judgment actions where plaintiffs are seeking only a determination of no liability. 715 F.2d at 764-65 (defensive declaratory judgment actions are not the types of cases that the New York courts have regularly linked to Section 302(a)(1)); see also Columbia Pictures Indus., Inc. v. Schneider, 435 F.Supp. 742, 749-50 (S.D.N.Y.1977) (New York's long-arm statute should not be interpreted to cover defensive declaratory judgment actions), aff'd, 573 F.2d 1288 (2d Cir.1978). However, the expression of those doubts were dicta, and several district courts in this circuit have since exercised jurisdiction over foreign defendants in declaratory judgment actions. See, e.g., Moyers v. Brown, No. 89-Civ-4935-CSH, 1990 WL 3183,  5 (S.D.N.Y.1990) (distinguishing Beacon Enterprises on the facts and holding that, where a sufficient New York nexus is present, long-arm jurisdiction is not foreclosed simply because the action is one for declaratory relief); Dillard Dep't Stores, Inc. v. Application Art Lab. Co., 787 F.Supp. 49 (S.D.N.Y.1992) (finding long-arm jurisdiction in a declaratory judgment action); see also American Greetings Corp. v. Cohn, 839 F.2d 1164 (6th Cir.1988) (applying Ohio's long-arm statute, which provides for jurisdiction where the cause of action arises out of person's transaction of business in the state, to defensive declaratory judgment actions). In our view, therefore, the fact that the plaintiffs seek a declaration of no liability does not alter our conclusion. The critical fact is that the claim arises out of licensing agreements under which the licensees' New York business transactions are conducted.