New York’s Commercial Division is an attractive forum for parties to litigate disputes over financial transactions. And, because so many transactions flow through New York institutions, aggrieved plaintiffs often believe that the flow of money through the state gives them a hook to sue defendants in New York courts. Often, that is true. But there are limits.
Justice Jamieson discussed those limits in de Arata v. Mathison, Index No. 55723/16. In that case, the plaintiff alleged that her former son-in-law, Mathison, who managed her investments, stole money from her in three transactions. Mathison gave that money to defendant Central Andean Investment Corp. to invest, but Central lost the money. The plaintiff sued Mathison, who defaulted, and the Court entered summary judgment against him.
This decision, however, concerns the plaintiff’s claims against Columbia-based Central and its principal, Jorge Fernando Ricardo Varela. Central and Varela moved for summary judgment dismissing them from the case on the ground that the New York court could not exercise personal jurisdiction over them.
Significantly, there was no evidence that Central or Varela knew that the money they received from Mathison belonged to the plaintiff. There was also no evidence that they stole or misappropriated the money. Instead, it appeared that they simply made bad investments. Central cleared its transactions through a company in Panama, which in turn cleared through Pershing, LLC, which maintained an account with Bank of New York–Mellon. Justice Jamieson found that this connection to New York was too tenuous to support personal jurisdiction over Central and Varela under New York’s longarm statute.
The key provision in the analysis is CPLR 302(a)(1), which allows a New York court to exercise jurisdiction over a “nondomiciliary” if it “transacts any business within the state or contracts anywhere to supply goods or services in the state” and there is “a substantial relationship between the transaction and the claim asserted.” Wilson v. Dantas, 128 A.D.3d 176 (1st Dep’t 2015), aff’d 29 N.Y.3d 1051 (2017). The plaintiff argued that: (i) Central and Varela purposefully used the correspondent bank on three occasions in connection with the plaintiff’s investments; and (ii) their use of those accounts came to an end “only because Defendants’ clandestine conversion was discovered by Plaintiffs and thereby stopped.”
Justice Jamieson, however, found that Central and Varela’s connections with New York were “essential adventitious” (quoting Licci v. Lebanese Canadian Bank, 20 N.Y.3d 327 (2012)). They were, in other words, not even defendants’ doing. “Central used a Panamanian bank for its transactions with plaintiffs’ money,” the Court explained. “The Panamanian bank is the entity that used the New York bank.” This, Justice Jamieson held, is not enough to support long arm jurisdiction over the defendants. The Court concluded: “There is nothing in the complaint, nor in the papers on this motion, that demonstrates that movants purposefully and knowingly availed themselves of a New York forum; the only contacts in New York are passive and coincidental. These transactions all occurred in Colombia, among Colombian actors, involving Colombian funds. Put differently, if any wrongdoing occurred, it occurred in Colombia, not New York.” Justice Jamieson granted summary judgment dismissing the claims against Central and Varela.
Takeaway: It is tempting to assert claims involving financial fraud in New York courts and, especially, in the Commercial Division, when funds are misappropriated using New York-based clearing banks. But plaintiff’s counsel must make sure that the connections to New York are strong enough to support personal jurisdiction. Justice Jamieson’s decision again demonstrates that the mere clearing of funds through New York, at some stage of the transaction, is not enough.
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