New York Law Review

Tag: transacting business

  • D&R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro, 28 N.Y.3d 295 (2016): Determining When a Foreign Corporation Transacts Business in NY for Long-Arm Jurisdiction

    D&R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro, 28 N.Y.3d 295 (2016)

    A court may exercise personal jurisdiction over a foreign corporation under New York’s long-arm statute if the corporation transacts business within the state, and the cause of action arises from that business activity.

    Summary

    A Spanish winery (defendant) contracted with a Spanish company (plaintiff) to find a U.S. distributor for its wine. The defendant traveled to New York multiple times to meet potential distributors and promote its wine. Eventually, the defendant began selling wine to a New York-based distributor. When the defendant stopped paying commissions to the plaintiff, the plaintiff sued in New York for breach of contract. The court held that New York had personal jurisdiction over the defendant because the defendant transacted business in New York, and the plaintiff’s claim arose from those New York contacts. The court emphasized the “articulable nexus” between the business conducted in New York and the claim.

    Facts

    The defendant, a Spanish winery, entered into an oral agreement with the plaintiff, a Spanish company. Under this agreement, the plaintiff would find a U.S. distributor for the defendant’s wine, and the defendant would pay the plaintiff commissions. The defendant, along with the plaintiff, traveled to New York several times to meet potential distributors and promote its wine. The defendant attended wine industry events in New York, including one where it met Kobrand Corp., a New York-based distributor. The defendant subsequently began selling wine to Kobrand. When the defendant stopped paying commissions, the plaintiff sued the defendant in New York for breach of contract.

    Procedural History

    The plaintiff initially obtained a default judgment in New York Supreme Court. The defendant moved to vacate the default judgment, claiming lack of personal jurisdiction. The Supreme Court denied the motion. The Appellate Division reversed, holding that whether the court had personal jurisdiction raised an issue of fact. On remand, the Supreme Court again denied the defendant’s motion for summary judgment. The Appellate Division reversed, holding that the defendant was not subject to personal jurisdiction under CPLR 302 (a)(1), claiming that the promotional activities in New York did not have a substantial nexus to the plaintiff’s claim. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether a New York court has personal jurisdiction over the defendant under CPLR 302(a)(1).
    2. If so, whether the plaintiff’s claim arises from the defendant’s transaction of business in New York.

    Holding

    1. Yes, because the defendant transacted business in New York.
    2. Yes, because the plaintiff’s claim arises from the defendant’s transaction of business in New York.

    Court’s Reasoning

    The court applied CPLR 302(a)(1), which allows New York courts to exercise jurisdiction over non-domiciliaries who transact business within the state. The court followed a two-fold inquiry: whether the defendant purposefully availed itself of the privilege of conducting activities within New York, and whether the claim arises from that business. The court found that the defendant purposefully availed itself of doing business in New York by seeking out and initiating contact with New York, soliciting business, and establishing a continuing relationship. The court held that the plaintiff’s cause of action had an “articulable nexus” or “substantial relationship” with the defendant’s New York business activities. The court reasoned that “at least one element arises from the New York contacts.” The court emphasized that the defendant’s activities in New York directly related to the claim for unpaid commissions.

    The court stated that “a non-domiciliary defendant transacts business in New York when ‘on his or her own initiative[,] the non-domiciliary projects himself or herself into this state to engage in a sustained and substantial transaction of business.’” Furthermore, the court stated that an articulable nexus exists “where at least one element arises from the New York contacts.”

    Practical Implications

    This case is crucial for determining personal jurisdiction over foreign corporations in New York. It clarifies that a foreign company can be subject to New York jurisdiction if it purposefully engages in business activities within the state, even if the primary agreement was made outside of New York. It underscores the importance of establishing an “articulable nexus” between the business conducted in New York and the claim. Legal practitioners should carefully analyze a foreign defendant’s contacts with New York to determine whether those contacts meet the threshold of “transacting business” and whether the plaintiff’s claim arises from those contacts. This case also highlights that foreign companies who take purposeful actions to generate business in New York can reasonably expect to be haled into court in the state. Later cases have cited this case to establish jurisdictional nexus in the state. This has implications for international contracts and business deals.

  • Ehrenfeld v. Bin Mahfouz, 9 N.Y.3d 501 (2007): Jurisdiction Based on Foreign Lawsuit Contacts

    9 N.Y.3d 501 (2007)

    A person who sues a New York resident in a non-U.S. jurisdiction, and whose contacts with New York stem from that foreign lawsuit, does not necessarily transact business within New York under CPLR 302(a)(1), even if success in the foreign suit results in acts to be performed by the subject of the suit in New York.

    Summary

    Rachel Ehrenfeld, a New York author, was sued for defamation in England by Khalid Salim Bin Mahfouz, a Saudi Arabian businessman, based on statements in her book. Mahfouz served papers and sent communications related to the English lawsuit to Ehrenfeld in New York. Ehrenfeld then sued Mahfouz in New York, seeking a declaration that the English judgment was unenforceable. The New York Court of Appeals held that Mahfouz’s contacts with New York, stemming solely from the English lawsuit, did not constitute transacting business in New York under CPLR 302(a)(1), and therefore, New York courts lacked personal jurisdiction over him. The court emphasized that Mahfouz’s actions did not purposefully avail him of the benefits and protections of New York law.

    Facts

    Rachel Ehrenfeld, a New York-based author, wrote a book, “Funding Evil,” alleging that Khalid Salim Bin Mahfouz supported terrorist groups. The book was published in the U.S., but some copies were sold in the UK. Mahfouz, a Saudi Arabian businessman, claimed the allegations were false and sued Ehrenfeld for defamation in England. Mahfouz’s lawyers contacted Ehrenfeld in New York, seeking an apology and retraction. When Ehrenfeld refused, Mahfouz sued her in England, serving her with court papers at her New York City apartment and communicating with her via mail and e-mail regarding the English action.

    Procedural History

    Mahfouz obtained a default judgment against Ehrenfeld in England. Ehrenfeld then filed suit against Mahfouz in the United States District Court for the Southern District of New York, seeking a declaratory judgment that the English judgment was unenforceable. The district court dismissed the case for lack of personal jurisdiction. The Second Circuit certified a question to the New York Court of Appeals regarding whether CPLR 302(a)(1) conferred personal jurisdiction over Mahfouz. The New York Court of Appeals answered in the negative.

    Issue(s)

    Whether CPLR 302(a)(1) confers personal jurisdiction over a person (1) who sued a New York resident in a non-U.S. jurisdiction; and (2) whose contacts with New York stemmed from the foreign lawsuit and whose success in the foreign suit resulted in acts that must be performed by the subject of the suit in New York?

    Holding

    No, because these contacts do not constitute the transaction of business in New York under CPLR 302(a)(1).

    Court’s Reasoning

    The court reasoned that under CPLR 302(a)(1), a court may exercise personal jurisdiction over a non-domiciliary who transacts business within the state if the cause of action arises from that transaction. The “overriding criterion” is whether the defendant “purposefully avails itself of the privilege of conducting activities within [New York].” The court found that Mahfouz’s contacts with New York were solely related to the English lawsuit and did not involve invoking the benefits or protections of New York law. His communications were intended to further his assertion of rights under English law. The court distinguished cases where a defendant actively sought to consummate a transaction in New York or established an ongoing relationship governed by New York law.

    The court rejected the argument that Mahfouz’s refusal to waive enforcement of the English judgment in New York constituted purposeful availment. Citing Ferrante Equip. Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280 (1970), the court stated that the mere receipt of a benefit or profit from a contract performed by others in New York is not sufficient to confer jurisdiction. The alleged chilling effect on Ehrenfeld’s speech did not arise from Mahfouz’s invocation of New York law, but from the English remedy and Ehrenfeld’s own activities in New York.

    The court declined to adopt the Ninth Circuit’s holding in Yahoo! Inc. v. La Ligue Contre Le Racisme Et L’Antisemitisme, 433 F.3d 1199 (2006), because California’s long-arm statute is coextensive with federal due process requirements, while New York’s long-arm statute is more restrictive. The court emphasized that New York law requires purposeful availment of New York law, which was not present in this case. The court stated that using an effects test would be “an unwarranted extension of [section 302 (a) (1)] and a usurpation of a function more properly belonging to the Legislature.”

  • Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460 (1988): Rejecting the Fiduciary Shield Doctrine in New York Long-Arm Jurisdiction

    Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460 (1988)

    New York’s long-arm statute, CPLR 302(a)(1), does not recognize the fiduciary shield doctrine, meaning that corporate officers or employees are not automatically shielded from personal jurisdiction in New York simply because their actions were taken on behalf of a corporation.

    Summary

    Plaintiff Kreutter invested in a Texas oil venture through McFadden Company, a New York corporation acting as an agent for Texas-based McFadden Oil and Harmony Drilling. After losing his investment, Kreutter sued the Texas defendants, including Downman, an officer of both McFadden Oil and Harmony, seeking jurisdiction under New York’s long-arm statute. The Court of Appeals reversed the Appellate Division, holding that the fiduciary shield doctrine does not protect Downman from jurisdiction and that Harmony also transacted business in New York through McFadden Company. The court emphasized that constitutional due process and the specifics of CPLR 302 adequately address fairness concerns, and the fiduciary shield doctrine is unnecessary and undesirable as a matter of public policy.

    Facts

    Brian McFadden and Eugene Burch Downman formed McFadden Company in New York to market investments in Downman’s Texas oil operations. McFadden Company sold participation shares, retaining a commission and forwarding the balance to McFadden Oil. Kreutter, a New York resident, invested $70,000 for the purchase of an oil rig. The funds, after commission, were eventually directed to Harmony Drilling, a company owned by Downman, his wife, and daughter. Kreutter received nothing and sued the defendants for fraud, conversion, and breach of contract.

    Procedural History

    The Supreme Court denied the Texas defendants’ motion to dismiss for lack of jurisdiction. The Appellate Division modified, sustaining jurisdiction over McFadden Oil but dismissing the action against Downman and Harmony, invoking the fiduciary shield doctrine for Downman and finding insufficient contacts for Harmony. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the fiduciary shield doctrine protects a corporate officer from personal jurisdiction in New York when their contacts with the state were solely on behalf of the corporation.
    2. Whether Harmony Drilling transacted business in New York through its relationship with McFadden Company.

    Holding

    1. No, the fiduciary shield doctrine does not protect a corporate officer from personal jurisdiction in New York, because the statute’s language and history do not support such protection, and constitutional due process adequately addresses fairness concerns.
    2. Yes, Harmony Drilling transacted business in New York, because it used McFadden Company to secure Kreutter’s investment and received funds directly from McFadden Company.

    Court’s Reasoning

    The court rejected the fiduciary shield doctrine, finding no support for it in CPLR 302 or its legislative history. The court reasoned that due process considerations and the limitations within CPLR 302 adequately protect against unfair assertions of jurisdiction. The court found that fairness concerns are addressed by constitutional due process requirements. The Court highlighted that the objective is to acquire jurisdiction over an individual who was a primary actor in the transaction in New York. The Court noted “Inasmuch as the constitutional and statutory safeguards sufficiently alleviate the equitable concerns posed by long-arm jurisdiction, there is ‘no convincing reason why the mere fact of corporate employment should alter the jurisdictional calculus.’” Regarding Harmony, the court found that Harmony used McFadden Company in New York to secure Kreutter’s investment and benefitted from that relationship. The Court concluded, “Jurisdiction over Harmony was properly sustained because Harmony used McFadden Company in New York to secure plaintiffs investment, it paid McFadden Company for that service, and it received the balance of the invested funds directly from McFadden Company when it issued a check payable to Harmony.” The Court found the Appellate Division’s finding was against the weight of the evidence.

  • Parke-Bernet Galleries, Inc. v. Franklyn, 41 N.Y.2d 103 (1976): Establishing Jurisdiction Based on Business Transactions and Tortious Acts

    Parke-Bernet Galleries, Inc. v. Franklyn, 41 N.Y.2d 103 (1976)

    A New York court lacks personal jurisdiction over non-residents when their activities in New York are minimal and do not constitute transacting business or causing tortious injury within the state.

    Summary

    Parke-Bernet Galleries sued Florida residents in New York to recover property transferred as compensation for services. The defendants moved to dismiss for lack of personal jurisdiction. The New York Court of Appeals affirmed the dismissal, holding that the defendants’ limited contacts with New York, such as contacting banks for property appraisals and a single visit to view property, did not constitute transacting business within the state under CPLR 302(a)(1). Furthermore, the alleged tortious conduct (fraud and misrepresentation) did not occur in New York, nor did it cause injury to person or property in New York, precluding jurisdiction under CPLR 302(a)(2) and (3).

    Facts

    Plaintiffs transferred real and personal property in Florida to defendants, who resided in Florida, as compensation for services related to a tax-saving plan. The plan involved transferring assets in trust to a Georgia-based tax-exempt corporation. Real property in New York was conveyed to the charitable corporation as the trust res. The plaintiffs alleged that the defendants contacted New York banks for property appraisals. One defendant visited New York to view the property with a representative of the charitable corporation. The plaintiffs alleged fraud and deceit in obtaining compensation, including collusion with the tax-exempt corporation and misrepresentation of legal authority to conduct business in New York. All negotiations and payment of compensation occurred in Florida.

    Procedural History

    Plaintiffs brought suit in New York seeking to recover real and personal property. Defendants cross-moved to dismiss the complaint for lack of personal jurisdiction in response to a motion by plaintiffs to compel examination before trial. The Appellate Division granted the defendants’ cross-motion to dismiss. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the defendants were transacting business within the State of New York within the contemplation of CPLR 302(a)(1) such that personal jurisdiction could be established.
    2. Whether the defendants committed a tortious act within or without the State of New York, causing injury to person or property within the state under CPLR 302(a)(2) and (3), thereby establishing personal jurisdiction.

    Holding

    1. No, because the defendants’ activities in New York were minimal and did not constitute a purposeful availment of the privilege of conducting activities within the state, thus not satisfying the requirements of CPLR 302(a)(1).
    2. No, because the alleged tortious conduct did not occur in New York, nor did it cause injury to person or property within the state, thus precluding jurisdiction under CPLR 302(a)(2) and (3).

    Court’s Reasoning

    The Court reasoned that the plaintiffs failed to demonstrate that the defendants transacted business in New York within the meaning of CPLR 302(a)(1). The negotiations, agreement for compensation, and payment all occurred in Florida. The defendants’ contacts with New York, limited to contacting banks for appraisals and a single visit to view the property, were insufficient to establish jurisdiction. These activities did not constitute the purposeful transaction of business within the state, nor did they establish a direct relationship between the cause of action and the defendants’ contacts with New York.

    Regarding the alleged tortious conduct, the Court found no evidence that any misconduct occurred in New York or that any injury was caused to person or property in New York. “Whatever may be said of the legal sufficiency of these allegations, there is no showing that any of the misconduct charged took place in New York or that any injury was caused to person or property in New York.” Therefore, jurisdiction could not be sustained under CPLR 302(a)(2) or (3).

    The Court emphasized that the burden of proof rests on the party asserting jurisdiction to demonstrate an adequate basis for it. The plaintiffs failed to meet this burden by providing sufficient evidence of the defendants’ activities in New York.

  • McKee Electric Co. v. Bombay Spirits Co., 26 N.Y.2d 15 (1970): Establishing Personal Jurisdiction Over Foreign Corporations

    McKee Electric Co. v. Bombay Spirits Co., 26 N.Y.2d 15 (1970)

    A foreign corporation is not subject to personal jurisdiction in New York solely because it sells goods to an independent distributor who then resells those goods in New York, even if the contract was signed in New York and obligates the plaintiff to promote the defendant’s products.

    Summary

    McKee Electric Co., a New York corporation, sued Bombay Spirits Co., a Scottish corporation, for breach of contract. McKee claimed Bombay breached an exclusive distribution agreement by allowing other distributors to sell Bombay gin in McKee’s territory. Bombay moved to dismiss for lack of personal jurisdiction. The New York Court of Appeals held that Bombay was not subject to jurisdiction in New York because it did not transact business within the state. Bombay’s sales to an independent distributor, Penrose, did not constitute transacting business in New York, even though the contract was signed in New York and required McKee to promote Bombay’s products.

    Facts

    McKee Electric Co. was a New York liquor distributor. Bombay Spirits Co. was a Scottish corporation that manufactured Bombay gin. Penrose & Co., a Pennsylvania corporation, had the U.S. distribution rights to Bombay products. In 1961, McKee, Bombay, and Penrose entered into an agreement granting McKee the exclusive right to sell Bombay products in the New York metropolitan area. Bombay and Penrose agreed not to grant distribution rights to anyone else in that territory, and McKee promised to use its best efforts to promote Bombay’s products. Bombay signed the agreement in Scotland; McKee signed it last in New York. McKee alleged that Bombay and Penrose breached the agreement by giving distribution rights to other companies, who were selling Bombay spirits in McKee’s territory.

    Procedural History

    McKee sued Bombay, Penrose, and other distributors in New York, seeking injunctive relief and damages. Bombay was served in Great Britain. Bombay moved to dismiss the complaint for lack of personal jurisdiction. The trial court denied the motion. The Appellate Division reversed, granting Bombay’s motion to dismiss. McKee appealed to the New York Court of Appeals.

    Issue(s)

    Whether Bombay Spirits Co., a Scottish corporation, is subject to personal jurisdiction in New York under CPLR 302(a)(1) based on its contract with a New York distributor and the distributor’s activities in New York to promote Bombay’s products.

    Holding

    No, because Bombay did not transact business within New York. The fact that McKee signed the contract in New York and was obligated to promote Bombay’s products in New York is not sufficient to establish jurisdiction.

    Court’s Reasoning

    The court reasoned that Bombay did not transact any business within New York. Bombay maintained no offices, bank accounts, telephone listings, or warehouses in New York. It did not employ any salesmen, solicit any orders, make any sales, or conduct any shipping activities in New York. Instead, Bombay sold its products to Penrose, an independent distributor, F.O.B. Great Britain, who then imported and sold the products in the United States. The court distinguished this case from prior cases where jurisdiction was found because in those cases, the foreign corporation had directly engaged in activities in New York, such as sending employees to promote business or buying stolen property. The court relied on Kramer v. Vogl, 17 N.Y.2d 27 (1966), where it held that jurisdiction was lacking over a foreign corporation that sold small quantities of leather F.O.B. Austria to a New York distributor and did not engage in any sales, promotion, or advertising activities in New York. The court stated that it is “not * * * determinative” that the plaintiff signed the contract in New York or that it was obligated therein “to promote” the purchases of Bombay’s products in this State. The court concluded that since Bombay was not transacting business in New York, service of process upon it abroad was insufficient to give New York courts jurisdiction over it.