Magwitch, L.L.C. v. Pusser's Inc.

84 A.D.3d 529, 923 N.Y.S.2d 455

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: May 12, 2011
• Status: Published

Opinions

Order, Supreme Court, New York County (Barbara R Kapnick, J.), entered July 1, 2009, which granted defendants’ motion to dismiss the complaint for lack of personal jurisdiction, affirmed, without costs.

This action seeks to enforce payment of a promissory note made by Pusser’s Ltd.-, a company incorporated in the British Virgin Islands (BVI), in favor of a bank in the BVI, which plaintiff, a New York corporation, purchased at a discounted price. Plaintiff is solely owned and managed by an attorney who resides in New Jersey and is licensed to practice in New York, New Jersey and the United States Virgin Islands.

On May 9, 2002, plaintiff entered into an assignment agreement with Barclays Bank PLC, whereby plaintiff purchased $3,300,000 of the debt owed by Pusser’s Ltd. to Barclays in exchange for $1,500,000. Plaintiff was assigned the note and all security held by Barclays in Pusser’s Ltd.’s assets. The agreement was governed by BVI law, and was signed by all parties in the BVI except plaintiff, which executed the agreement in New Jersey. The assignment of the security agreements, which provided for the collateral in the United States that secured the note, was executed by defendant Charles S. Tobias in the BVI and was governed by BVI law.

Following Pusser’s Ltd.’s default on the note, plaintiff commenced an action in New Jersey federal court to recover on the note against the same defendants sued herein, namely, Pusser’s Ltd., two entities affiliated with Pusser’s Ltd. (one incorporated in Florida and the other in the BVI), and Tobias, a resident of the BVI who controls the corporate defendants. After the New Jersey action was dismissed for lack of personal jurisdiction, plaintiff commenced this action in Supreme Court, New York County. Defendants timely removed the action to federal court, based on the alleged existence of federal diversity jurisdiction; the removal was effected before the expiration of defendants’ time to respond to the complaint by answer or motion. Plaintiff moved to remand the action to New York Supreme Court for lack of diversity, and defendants moved to dismiss for lack of personal jurisdiction. The federal court granted plaintiffs motion and directed that the entire matter, including defendants’ pending motion to dismiss, be remanded to state court. Upon remand, Supreme Court granted the motion to dismiss. We affirm.

Contrary to the argument of plaintiff and the dissent, defendants did not waive any defenses based on lack of personal jurisdiction by removing the action to federal court. We agree with the view of the Third Department, expressed in a decision issued after this appeal was argued, that Farmer v National Life Assn. of Hartford, Conn. (138 NY 265 [1893]), relied on by-plaintiff and the dissent, is no longer binding because it was “based on the outdated distinction between special and general appearances . . . and also on the removal procedure applicable at that time, long since superseded by the CPLR, the Federal Rules of Civil Procedure, and 28 USC § 1446” (Benifits by Design Corp. v Contractor Mgt. Servs., LLC, 75 AD3d 826, 828 [2010]; see also Siegel, NY Prac § 109 [4th ed] [under prior law “a ‘special’ appearance . . . was used by the defendant for the sole purpose of objecting to the court’s jurisdiction of his person,” but “(t)he CPLR abolished the ‘special’ appearance, and since the ‘general’ appearance was used only to differentiate it from the special one, both categories have disappeared under the CPLR”]). “Moreover, though not controlling, we note that removal does not waive the defense of lack of personal jurisdiction in federal court” (Benifits by Design, 75 AD3d at 828 [citations omitted]). While this Court rejected a similar argument against Farmer's continuing viability in Quinn v Booth Mem. Hosp. (239 AD2d 266 [1997]), we find the reasoning of the Third Department in the more recent Benifits by Design case persuasive and, given the desirability of uniform construction of the CPLR throughout the state, follow the latter decision.

The motion court properly dismissed the action for lack of personal jurisdiction. Although CPLR 302 (a) (1) permits a court to exercise personal jurisdiction over any nondomiciliary who, in person or through an agent, “transacts any business within the state or contracts anywhere to supply goods or services in the state,” defendants’ actions here did not amount to purposeful activity by which they availed themselves of the privilege of conducting business in New York. The acts of sending payments to a New York bank account and correspondence to a New York address, and engaging in telephone discussions with plaintiffs principal, who also was defendants’ legal advisor while he was in New York, were not a sufficient basis to satisfy the statutory requirements (see Kimco Exch. Place Corp. v Thomas Benz, Inc., 34 AD3d 433, 434 [2006], lv denied 9 NY3d 803 [2007]).

The court also properly found that it could not exercise personal jurisdiction over defendants pursuant to CPLR 302 (a) (3). That section provides for jurisdiction over a defendant who (1) commits a tortious act outside New York (2) that causes injury within New York (3) where the defendant either (i) does or solicits business, or engages in any other course of conduct, or derives substantial revenue from activities in New York, or (ii) expects or should expect that its tortious act will have consequences in New York, and derives substantial revenue from interstate or international commerce (see CPLR 302 [a] [3]; see generally Cooperstein v Pan-Oceanic Mar., 124 AD2d 632, 633 [1986], lv denied 69 NY2d 611 [1987]). The determination of whether a tortious act committed outside New York causes injury inside the state is governed by the “situs-of-injury” test, requiring determination of the location of the original event that caused the injury (see Bank Brussels Lambert v Fiddler Gonzalez & Rodriguez, 171 F3d 779, 791 [2d Cir 1999]; see also Kramer v Hotel Los Monteros S. A., 57 AD2d 756 [1977], lv denied 43 NY2d 649 [1978]).

Here, the original event that caused the injury was not, as plaintiff maintains, the disbursement of funds from New York to purchase the note from Barclays, since there would not have been any injury if payment had been made when due. Rather, the injury was caused by misrepresentations about the transfer of assets and the transfer and diversion of funds, which occurred in the BVI and locations other than New York, and resulted in the unavailability of funds to pay plaintiff the amounts due on the note. The second part of the test also cannot be satisfied, since defendants do not either: regularly do or solicit business, or engage in any other persistent course of conduct, or derive substantial revenue for goods or services used or rendered in New York; or reasonably expect the alleged tortious act to have consequences in the state, and derive substantial revenue from interstate or international commerce (see CPLR 302 [a] [3]). Concur — Tom, J.E, Friedman, Acosta and Román, JJ.