The First Department recently adjudicated an appeal in which one of the several issues considered was whether telephone and email communications to New York from an out-of-state party sufficed to find purposeful activity or contacts that conferred personal jurisdiction.
In C. Mahendra (NY), LLC v. National Gold & Diamond Ctr., Inc., 2015 NY Slip Op 01157 (First Dept. February 10, 2015), the Appellate Division unanimously reversed, on the law, an Order of Supreme Court, New York County (Coin, J.), that “granted defendants’ motion to dismiss the complaint for lack of personal jurisdiction.
The Court summarized the facts:
Plaintiff is a New York wholesale supplier of loose diamonds on consignment to vendors; defendant is a California seller of jewelry, including goods that it accepted on consignment. The parties began doing business with each other in 2002; defendant placed numerous orders, totaling millions of dollars, by telephoning plaintiff in New York and negotiating terms of size, price range, and description of the diamonds. In the course of their dealings, plaintiff shipped diamonds to defendant “on memorandum” so that defendant could examine the diamonds and decide whether to keep them. Plaintiff then sent defendant invoices for the diamonds it purchased. Both the memoranda and invoices contained conditions regarding jurisdiction, each stating: “[Y]ou consent to the exclusive jurisdiction of the State and Federal courts situate[d] in New York County. This contract shall be construed and governed in accordance with the laws of New York, without giving effect to its choice of law principles.”
Several years into the parties’ business arrangement, defendant allegedly failed to pay a balance of around $14,000 for a June 2009 consignment. Similarly, defendant allegedly failed to pay more than $50,000 for a March 2011 consignment. Plaintiff commenced this action, seeking to recover more than $64,000. In its complaint, plaintiff interposed causes of action for, among other things, account stated, goods sold and delivered, and breach of contract.
The prior proceedings with respect to jurisdiction:
Defendant moved to dismiss the complaint on several grounds, including lack of personal jurisdiction. On the motion, defendant argued that its telephone calls, letters, and faxes to plaintiff — defendant’s only connection to New York — did not constitute sufficient “purposeful activity” or sufficient contacts to subject it to personal jurisdiction in this state.
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[Supreme Court] found, personal jurisdiction was lacking on a “transaction of business” theory because defendant’s telephone orders from California to New York were not sufficiently purposeful activity to confer jurisdiction. Indeed, the court noted, defendant’s employees did not travel to New York on business, but rather, plaintiff’s employees traveled to California to establish business relations and display merchandise[.]
And held that:
Here, during telephone discussions, the parties negotiated the essential terms required for contract formation, and the invoices were merely confirmatory…Thus, the forum selection clause is an additional term that materially altered the parties’ oral contracts, and defendant did not give its consent to that additional term…
However, the motion court erred in finding that the parties’ telephone dealings over several years and in the two transactions at issue were insufficient as a matter of law to confer personal jurisdiction over defendant pursuant to CPLR 302(a)(1). CPLR 302(a)(1) authorizes the assertion of long-arm jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” CPLR 302(a)(1) is a “single act statute”; accordingly, physical presence is not required and one New York transaction is sufficient for personal jurisdiction. The statute applies where the defendant’s New York activities were purposeful and substantially related to the claim…”Purposeful” activities are defined as “those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws”…
We recognize that courts of this state have generally held telephone communications to be insufficient for finding purposeful activity conferring personal jurisdiction…However, there are exceptions to this general rule, and in some cases, telephone communications will, in fact, be sufficient to confer jurisdiction…
Here, the court did not assess defendant’s conduct or defendant’s purposeful availment of the privilege of doing business in this forum…Although the motion court distinguished [a prior case] by pointing to the sophistication of the parties and the magnitude of the transactions in that case, those two factors do not determine the question of personal jurisdiction. On the contrary, as the Court of Appeals found [in a prior decision], the “quality of defendant’s contacts” is the primary consideration in deciding the question of long-arm jurisdiction…That the circumstances of the defendant’s telephone calls in this case were different from those in [a prior case] does not make defendant’s calls any less “purposeful.” While the business dealings in this case were not especially complex, they also did not fall on the opposite end of the spectrum — that is, a single consumer transaction…The quality of the defendant’s conduct was sufficient to subject defendant to long-arm jurisdiction.
The Decision of the First Department in C. Mahendra relied upon the analysis in two Court of Appeals decisions.
Deutsche Bank Sec., Inc. v. Montana Bd. Of Invs., 2006, NY Slip Op 04338 (7NY3d 65) [Court of Appeals, decided on June 6, 2006), arose out of the following facts:
[A] March 25, 2002 bond transaction between plaintiff Deutsche Bank Securities, Inc. (DBSI) and defendant Montana Board of Investments (MBOI). DBSI, a Delaware corporation with its headquarters in New York, is (among other things) engaged in trading securities for its own account and for clients. MBOI is a Montana state agency charged with managing an investment program for public funds, the public retirement system and state compensation insurance fund assets. In the 13 months prior to the transaction at issue here, DBSI and MBOI had engaged in approximately eight other bond transactions with a face value totaling over $100 million. These transactions were principally negotiated between Stephen Williams, a director in the Global Markets Sales Division of DBSI in New York, and Robert Bugni, Senior Investment Officer-Fixed Income with MBOI in Montana.
On the morning of March 25, 2002, from New York City, Williams contacted Bugni to ask if MBOI was interested in swapping its Pennzoil-Quaker State Company 2009 bonds for DBSI’s Toys R Us bonds, or selling the Pennzoil bonds to DBSI for a stated price. Williams communicated with Bugni electronically through the Bloomberg Messaging System, an instant messaging service provided to Bloomberg subscribers. Bugni responded that MBOI was not interested in the swap proposal. Williams countered that the Pennzoil bid looked good but Bugni replied that the bonds “will get a lot tighter” (increase in price) and MBOI wanted to hold onto them. Williams ended the exchange with a simple “THX” (thanks)[.]
Approximately 10 minutes later, Bugni, knowing that Williams was in New York, sent him a new instant message asking whether the price originally quoted by Williams applied only to the swap, or if it would be the same for a cash purchase. Bugni indicated that MBOI had $15 million of Pennzoil bonds it might be interested in selling. Williams replied that DBSI would like to purchase $5 million of the bonds outright and could probably “trade the balance with one phone call.” Bugni countered with a request that Williams investigate whether all $15 million could be sold at the price he quoted. After a DBSI colleague contacted some of his clients and found that DBSI had a sufficient market for all $15 million, Williams replied to Bugni that DBSI would purchase all $15 million at his quoted price, with a settlement date of March 28, 2002. Bugni agreed, and Williams sent a trade ticket and confirmation of the deal.
Hours after the parties concluded their agreement, on the evening of March 25, 2002, Shell Oil publicly announced that it had agreed to acquire Pennzoil-Quaker State Company, an announcement that would potentially increase the value of the bonds. The following day, MBOI advised DBSI that it was breaking the trade because it believed the buyer had inside information and the trade was “unethical & probably illegal.” As a result of MBOI’s cancellation, DBSI purchased the Pennzoil bonds elsewhere, paying an additional $1.6 million.
And prior proceedings:
DBSI then commenced this action in Supreme Court, New York County, alleging breach of contract, and MBOI answered. After limited discovery, DBSI sought summary judgment as to liability as well as dismissal of MBOI’s affirmative defenses. MBOI cross-moved for dismissal of the action based on its affirmative defenses of lack of personal jurisdiction, sovereign immunity and comity. Supreme Court granted MBOI’s cross motion to dismiss the complaint for lack of personal jurisdiction and denied DBSI’s motion for partial summary judgment. The Appellate Division in a comprehensive opinion unanimously reversed, dismissing MBOI’s affirmative defenses and granting DBSI’s motion for partial summary judgment as to liability[.]
MBOI contended that “there [was] insufficient basis for the exercise of long arm jurisdiction and thus the case should have been dismissed for lack of jurisdiction.” The Court of Appeals, as follows, rejected MBOI’s contention:
New York’s long-arm statute provides that “a court may exercise personal jurisdiction over any non-domiciliary…who in person or through an agent…transacts any business within the state or contracts anywhere to supply goods or services in the state” (CPLR 302 [a] ). By this “’single act statute’…proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted[.]”
[T]he growth of national markets for commercial trade, as well as technological advances in communication, enable a party to transact enormous volumes of business within a state without physically entering it. Thus, we held that “[s]o long as a party avails itself of the benefits of the forum, has sufficient minimum contacts with it, and should reasonably expect to defend its actions there, due process is not offended if that party is subjected to jurisdiction even if not ‘present’ in that State”…We have in the past recognized CPLR 302 (a) (1) long-arm jurisdiction over commercial actors and investors using electronic and telephonic means to project themselves into New York to conduct business transactions…and we do so again here.
MBOI should reasonably have expected to defend its actions in New York. As distinct from an out-of-state individual investor making a telephone call to a stockbroker in New York…MBOI is a sophisticated institutional trader that entered New York to transact business here by knowingly initiating and pursuing a negotiation with a DBSI employee in New York that culminated in the sale of $15 million in bonds. Negotiating substantial transactions such as this one was a major aspect of MBOI’s mission—“part of its principal reason for being”…Further, over the preceding 13 months, MBOI had engaged in approximately eight other bond transactions with DBSI’s employee in New York, availing itself of the benefits of conducting business here, and thus had sufficient contacts with New York to authorize our courts to exercise jurisdiction over its person. As Professor Siegel has observed, where a defendant “deals directly with the broker’s New York office by phone or mail [or e-mail] in a number of transactions instead of dealing with the broker at the broker’s local office outside New York, long-arm jurisdiction may be upheld[.]”
In short, when the requirements of due process are met, as they are here, a sophisticated institutional trader knowingly entering our state—whether electronically or otherwise—to negotiate and conclude a substantial transaction is within the embrace of the New York long-arm statute.
Fischbarg v. Doucet, 2007 NY Slip Op 09962 (9 N.Y.3d 375) [Court of Appeals, decided on December 20, 2007], raised the question of “whether Supreme Court properly exercised personal jurisdiction over defendants, an individual and corporation, both residents of California, who retained a New York attorney to represent the corporation in an action brought in an Oregon federal court.”
And the Court of Appeals concluded:
Because we conclude that defendants’ retention and subsequent communications with plaintiff in New York established a continuing attorney-client relationship in this state and thereby constitute the transaction of business under CPLR 302(a)(1), we hold that the exercise of jurisdiction was proper.
Based upon the following facts:
In February 2001, defendant Suzanne Bell-Doucet, a California resident and president of defendant Only New Age Music, Inc. (ONAM), a California corporation, placed a telephone call to plaintiff, attorney Gabriel Fischbarg, a member of the New York bar, at his New York office. During the ensuing conversation, the parties discussed plaintiff’s potential representation of ONAM in a lawsuit alleging breach of contract, fraud and copyright infringement claims against Allegro Corp., a nonparty Oregon corporation. On February 23, Ms. Bell-Doucet sent a letter to plaintiff’s New York office to confirm that he “offered to take this case on [a one-third] contingency” and that she would pay him a $2,000 deposit “against expenses.” Enclosed with the February 23 letter were “contracts, copyrighted material, [an] outline of events, and copies of correspondence” for plaintiff’s review. According to plaintiff, after receiving these materials, he entered into a retainer agreement with defendants by telephone from his New York office.
On May 30, 2001, Allegro filed suit against ONAM in the United States District Court for the District of Oregon. Although plaintiff was admitted to that court pro hac vice, during the course of the Oregon action, he was never physically present in Oregon. Nor did he ever meet with plaintiffs in California. Instead, plaintiff conducted his work pertaining to the Oregon action allegedly 238.4 hours worth from New York. He appeared at depositions and court conferences, and argued a motion for summary judgment via telephone from New York.
In addition, defendants repeatedly communicated with plaintiff in New York. According to plaintiff, over the course of approximately nine months (May 2001 through January 2002) during his representation of ONAM in the Oregon action, he spoke with defendants by telephone at least twice per week regarding their case. Plaintiff’s time records also show that on at least 31 occasions defendants sent e-mails regarding the Oregon case to plaintiff, that on three occasions they faxed materials to him, and that defendants sent plaintiff documents, by either mail or e-mail, seven times.
On January 15, 2002, a dispute regarding the terms of plaintiff’s retainer agreement arose. That same day, defendants accepted plaintiff’s e-mailed resignation as their attorney. While the Oregon action was still pending, plaintiff moved the Oregon court for an order awarding him $57,906.05 for services rendered prior to his resignation. The court denied plaintiff’s motion, concluding that it lacked personal and subject matter jurisdiction over the fee dispute. But the Oregon court held that a series of e-mails between plaintiff and defendant Bell-Doucet prior to his resignation established his contractual right to “a fair legal fee” at the conclusion of the Oregon action[.]
And prior proceedings:
On January 10, 2005, defendants entered into a settlement agreement that terminated the Oregon action. On January 31, plaintiff initiated the present lawsuit seeking damages for breach of contract and unjust enrichment. His complaint recited no specific statutory basis for personal jurisdiction over defendants. It simply alleged that defendant Bell-Doucet “is an individual residing in Los Angeles, California” and that defendant ONAM “is a California corporation doing business in this State.” Defendants responded with a motion to dismiss for lack of personal jurisdiction under CPLR 3211 (a) (8).
Supreme Court denied the motion. It held that it could properly exercise personal jurisdiction over defendants pursuant to CPLR 302 (a) (1) because their “activities in retaining plaintiff,…a New York attorney[,] situated in New York, to represent them in the Oregon Action w[ere] purposeful and a sufficient nexus exists between that retention…and the instant claim regarding allegedly unpaid legal fee”…The Appellate Division, in a 3-2 decision, agreed.
The majority reasoned that by seeking out plaintiff’s representation in New York and “[b]y working with plaintiff on a consistent basis…defendants ‘transacted business’ in New York sufficient to subject themselves to this State’s jurisdiction”…But two Justices dissented, finding the defendants’ contacts with this state “insufficient” to confer…CPLR 302 (a) (1) jurisdiction…The dissenters supported their reasoning with our decision [in a prior case] which they interpreted as precluding plaintiff from relying upon his “own activities in New York…to establish jurisdiction[.]”
The Court of Appeals, as follows, affirmed:
Defendants argue that they have transacted no business in New York because they have not purposefully availed themselves of the privileges and protections of our state’s laws. According to them, their retention of plaintiff and their communications by telephone, facsimile and e-mail with him are, as a matter of law, insufficient predicates for long-arm jurisdiction…Further, defendants contend that the courts below erroneously relied upon plaintiff’s unilateral New York activities to uphold jurisdiction. Plaintiff argues to the contrary. We agree with plaintiff.
CPLR 302 (a) (1) jurisdiction is proper “even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted”…Purposeful activities are those with which a defendant, through volitional acts, “avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws[.]”
Not all purposeful activity, however, constitutes a “transaction of business” within the meaning of CPLR 302 (a) (1). Thus, we have held that “merely telephon[ing] a single order” to New York requesting a shipment of goods to another state…the transitory presence of a corporate official here…and communications and shipments sent here by an out-of-state doctor serving as a “consultant” to plaintiff’s New York physician…do not support CPLR 302 (a) (1) jurisdiction. Here, however, we are not presented with such limited contacts. Instead, the case before us concerns defendants’ purposeful attempt to establish an attorney-client relationship here and their direct participation in that relationship via calls, faxes and e-mails that they projected into this state over many months. Although it is impossible to precisely fix those acts that constitute a transaction of business, our precedents establish that it is the quality of the defendants’ New York contacts that is the primary consideration[.]
The quality of defendants’ contacts here establishes a transaction of business in New York. Defendants sought out plaintiff…in New York and established an ongoing attorney-client relationship with him. Plaintiff’s time records and affidavit demonstrate that during the course of the representation, defendants communicated regularly with him in this state…A continuing relationship was also contemplated and created here, as evidenced by defendants’ retention letter and the many communications cited in plaintiff’s affidavit and time records, even though defendants never entered New York[.]
The fact that the defendant in [a prior case] was physically present in New York, whereas defendants here were not, is immaterial…It is well settled that “one need not be physically present [here]…to be subject to the jurisdiction of our courts under CPLR 302”…Indeed, we reaffirmed this principle just last year in [in Deutsche Bank] upholding long-arm jurisdiction over a “sophisticated institutional trader” who communicated with a New York securities broker using an “instant messaging service” akin to e-mail…[reasoning that “technological advances in communication enable a party to transact enormous volumes of business within a state without physically entering it”]). Thus, even when physical presence is lacking, jurisdiction may still be proper if the defendant “on his [or her] own initiative…project[s] himself [or herself]” into this state to engage in a “sustained and substantial transaction of business”[.]
Two prior Decisions by the First Department are also instructive.
In Arouh v. Budget Leasing, Inc., 2009 NY Slip Op 04751 [63 AD3d 506] (decided on June 11, 2009), the Appellate Division, as follows, affirmed Supreme Court’s Order granting defendants’ motion to dismiss the complaint for lack of personal jurisdiction:
Defendant’s negotiation of the potential purchase of an automobile via e-mail and telephone, which was initiated by plaintiff after viewing the car on defendant’s web site, is insufficient to constitute the “transaction” of business within New York…and, since the car was to be picked up in Texas, there was no contract “to supply goods or services in the state”…Defendant’s web site, which described available cars and featured a link for e-mail contact but did not permit a customer to purchase a car, was not a projection of defendant into the state…
And, in Liberatore v. Calvino, 293 A.D.2d 217 (decided on May 30, 2002), the Appellate Division reversed the Order of Supreme Court granting defendants’ motion to dismiss the complaint for lack of personal jurisdiction.
The First Department summarized the facts:
This action arose from a personal injury suffered by plaintiff, a Rhode Island minor visiting New York City in 1991, when the taxi in which she was a passenger was rear-ended by a bus. Upon her return home, she and her parents met with defendant Calvino, an attorney admitted in Rhode Island and Massachusetts, and engaged his services to represent her in seeking to recover for her injuries.
Over the next three years, Calvino concededly provided plaintiff with legal advice regarding New York’s No-Fault Law and statute of limitations, secured New York no-fault benefits to cover her ongoing medical bills, obtained plaintiff’s medical records from Bellevue Hospital in New York City as well as from various doctors in Rhode Island and Massachusetts, investigated her accident by contacting the New York Police Department and the bus company, and attempted to negotiate a settlement of her claims with the bus company, on several occasions threatening to commence a legal action in New York. Other than the legal advice, all of these activities were accomplished by numerous letters and telephone calls. When it became clear, in 1994, that a legal action would have to be commenced to resolve plaintiff’s claims, Calvino referred her to defendant Vecchio, a New York attorney, and his firm. Vecchio entered into a retainer agreement with plaintiff and a referral agreement with Calvino, agreeing to pay him “one-third (1/3) of the net attorney’s fees recovered in this case based upon the work performed by your office up to this point and the continuing work which will be performed in assisting in the representation of Ms. Liberatore in this action.” When Calvino returned those documents to Vecchio, he assured him that he would assist in settling plaintiff’s claims. Shortly thereafter, Calvino wrote a letter to Vecchio advising him of the status of his efforts to collect insurance payments for plaintiff’s medical bills and asked him to contact the insurance company about such bills that remained outstanding.
The pending action:
Vecchio commenced the New York action in 1995. Plaintiff periodically consulted with Calvino, but Vecchio had no further contact with Calvino until April 1997, when, by conference call, he advised Calvino and plaintiff at Calvino’s offices that the New York action had run afoul of the statute of limitations, since the bus company was owned by New York City and thus was subject to the one year and 90 day limitations period in General Municipal Law § 50-i. Subsequently, Vecchio phoned Calvino to advise him that the action had been settled for $7,500; Vecchio’s firm then paid Calvino $776.97 in attorney’s fees, which Calvino accepted. Plaintiff then brought the instant legal malpractice action against Calvino and Vecchio and their respective firms, alleging that due to their negligence in ascertaining the applicable statute of limitations, she was forced to enter into an unsatisfactory settlement. The court ordered a reference on the issue of whether it had personal jurisdiction over the Calvino defendants pursuant to CPLR 302 (a) (1).
The prior proceedings:
After a hearing, the referee found that plaintiff and Calvino maintained an attorney-client relationship, but that Calvino played no role in the New York litigation and conducted no purposeful activities in New York that were substantially related to plaintiff’s claim. The referee also found that the referral agreement between Calvino and Vecchio had no substantial relationship to plaintiff’s malpractice claim. [Supreme Court] confirmed the report.
The activities conceded in New York:
Calvino’s conceded activities in representing plaintiff in New York included both contracting to supply services in the state and a transaction of business within the state.
The then-applicable law:
A non-domiciliary transacts business in New York when he or she “purposefully avails [himself] of the privilege of conducting activities within [New York], thus invoking the benefits and protections of its laws”… The non-domiciliary’s contact with New York must be “purposeful and the totality of the circumstances indicate that the exercise of jurisdiction would be proper”… Once the court determines that a defendant has transacted business in New York, the plaintiff must establish a “substantial nexus” between the business transacted and the cause of action[.]
A nondomiciliary “contracts anywhere to supply…services in the state” when he projects himself into New York to perform services and purposefully avails himself of the privileges and benefits of performing such services in the state…
Under either prong of CPLR 302 (a) (1) it is necessary that the Due Process Clause of the United States Constitution be satisfied insofar as the basis of the exercise of long-arm jurisdiction must be a defendant’s “’minimum contacts’ with the state and must comport with ‘traditional notions of fair play and substantial justice’”…
Telephone calls and written communications, which generally are held not to provide a sufficient basis for personal jurisdiction under the long-arm statute, must be shown to have been “used by the defendant to actively participate in business transactions in New York[.]”
And the application of the facts to the law:
Calvino’s representation of plaintiff prior to the filing of the personal injury action met each of these criteria. Despite being unlicensed in New York, he projected himself into the state to perform services by contracting with plaintiff to legally represent her here for purposes of obtaining a favorable settlement of her New York personal injury claim from New York tortfeasors in accordance with New York law. He transacted business in New York by purposefully pursuing redress for plaintiff over a three-year period from various New York entities. He engaged in numerous written and telephonic communications with New York entities on plaintiff’s behalf in an effort to broker a settlement and earn legal fees. In rendering his services, he availed himself of the benefits and protections offered by various New York statutes, e.g., Insurance Law § 5101 et seq. and Public Health Law § 17, as well as wielding the threat of litigation in New York courts. The totality of the circumstances of Calvino’s representation to plaintiff for several years that he was sufficiently skilled and knowledgeable to pursue her New York claim at the pre-litigation stage makes it unquestionably fair and just that he be subject to New York jurisdiction for the legal malpractice claim resulting from his negligence in providing such services.
Lesson learned: A non-domiciliary’s telephone calls and/or emails directed into New York State, separately and/or collectively and standing alone, may constitute sufficient predicate “minimum contacts” to create a basis for personal jurisdiction in this State.
Post-script: The February 10, 2015 decision of the First Department in Mahendra does not advert to, or distinguish, the decisions of the Supreme Court of the United States in Daimler v. Bauman (2014) and Goodyear Dunlap Tires Operations v. Brown (2011) which called into question certain long-held assumptions about the reach of CPLR § 301 and the arguable applicability of those decisions to CPLR § 302.