Jonas et al v. The Estate of Gustave Leven et al
Filing
80
OPINION AND ORDER: re: 52 MOTION to Dismiss by Claude Broll filed by Charles Broll, 43 MOTION to Dismiss the Second Amended Complaint filed by Gestrust SA, 56 MOTION to Dismiss the Amended Complaint filed by Tanya Tamone, Jacques Cugny, Jean-Paul Crosier, 48 MOTION to Dismiss /Notice of Motion of Defendant The Rashi Foundation to Dismiss the Second Amended Complaint filed by The Rashi Foundation. Because this Court lacks personal juris diction over the moving defendants, the Court grants their respective motions to dismiss the complaint with prejudice (Dkt. Nos. 43, 48, 52, 56). The Clerk of Court is directed to dismiss this action with prejudice. SO ORDERED. (Signed by Judge Sidney H. Stein on 7/27/2015) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
STANLEY JONAS and DUTCH BOOK
PARTNERS,
Plaintiffs,
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 7/27/2015
14‐Cv‐3369 (SHS)
OPINION & ORDER
‐against‐
THE ESTATE OF GUSTAVE LEVEN;
JACQUES CUGNY; CHARLES BROLL;
TANYA TAMONE; JEAN‐PAUL
CROISIER; GESTRUST SA; BARNELI &
CIE SA; FRANCE VENDOME; THE REDID
TRUST; and THE RASHI FOUNDATION,
Defendants.
SIDNEY H. STEIN, U.S. District Judge.
This is the story of an international business deal gone wrong. In
2006, Gustave Leven, the founder of the Perrier mineral water empire, and
plaintiffs Stanley Jonas and his investment advisory firm Dutch Book
Partners, LLC purportedly entered into an oral agreement by which Leven
agreed to invest $500 million in a new Cayman Islands based investment
portfolio to be managed by Jonas. After Leven failed to pay the $500
million investment and withdrew an additional $50 million of funds that
he had in fact provided, plaintiffs filed this litigation in New York state
court to recover the fees and profits they claim they would have earned on
the original investment. This lawsuit is plaintiffs’ desperate attempt to
hold someone among eleven defendants accountable for the losses they
allegedly sustained.
After removing this action to the Southern District of New York,
various defendants filed motions to dismiss the complaint pursuant to
Fed. R. Civ. P. 12(b)(2) for want of personal jurisdiction and Fed. R. Civ. P.
12(b)(6) for failure to state a claim upon which relief can be granted. The
Court finds that it lacks personal jurisdiction over the moving
defendants—all foreign nationals or corporations—on the grounds that
they had essentially no connection with the state of New York. The Court
therefore grants their respective motions to dismiss the complaint.
I.
BACKGROUND1
In early 2006, Jonas, a New York investment broker, traveled to Paris,
France to market his new “principal protected investment strategy,” which
enabled investors to speculate on interest rate movements while avoiding
the loss of their principal investment. (SAC ¶¶ 1, 43, 45‐46.) Leven
attended Jonas’s presentations in Paris to learn more about his investment
strategy. (Id. ¶ 45.) According to Jonas, Leven had a “substantial amount
of assets maintained in United States Treasuries and was seeking a way to
hedge their principal risk should U.S. interest rates move substantially
higher.” (Id.)
Leven, then the head of France Vendome, a large financial holding
company in France, approached Jonas through a former colleague of
Jonas’s, Jon Manual Rozan, one of France’s leading options experts. (Id.
¶¶ 43‐44.) Jonas was also introduced to Jacques Cugny, Leven’s lawyer,
and Claude Broll, who was Vice Chairman of France Vendome and a
director of the Rashi Foundation, an Israeli charitable organization, and
Gestrust SA, the Swiss trustee of a trust established by Leven. (Id. ¶¶ 21,
43.)
A. The Alleged $500 Million Oral Investment Agreement
During various meetings between Leven and Jonas in France, Jonas
made oral and written presentations of his proposed “Dutchbook + Two
The following background section includes the facts as alleged by plaintiffs in their
second Amended Complaint (the “SAC” or “complaint”), as well as certain
jurisdictional facts as set forth in the declarations of the parties.
1
2
Year Note Treasury Hedge Portfolio Strategy.”2 (SAC ¶ 47.) Ultimately,
Leven made the following investment proposal to Jonas:
a. Leven would transfer a “seed investment” of $500,000,000 of
United States Treasuries held at that time at Union Bank in
Switzerland to a Cayman Islands based fund for a minimum of
two years in order to create a track record of success for that
portfolio, in which Leven would be the only investor;
b. In return, Leven would obtain a 50% interest in Jonas’s Dutch
Book Partners, a Delaware limited liability company;
c. Jonas would complete the formation and funding of Dutch Book
Partners and the Cayman Islands based fund;
d. Jonas through Dutch Book Partners would manage the “Dutch
Book + Two Year Note Treasury Hedge Portfolio” and Dutch
Book Partners would receive two percent of funds under
management for its expenses and services;
e. Dutch Book Partners would also retain 20% of the profits in the
trading based on the increase in value of the assets under
management;
f. After a track record of success had been established, Leven—
through Aurel Leven3 and Gestrust—would help to market the
fund; and
g. Leven and Partners would split any profit, losses, and costs at the
end of each year of the agreement.
(See SAC ¶¶ 3, 53.)
A Dutch Book is “a set of positions ‘betting’ on a particular outcome that, in sum,
earns a positive return for the owner of the ‘Dutch Book’ regardless of the outcome.”
(Information Memorandum at iii, Ex. C annexed to the Decl. of Kevin A. Burke, dated
October 31, 2014 (“Burke Decl.”).)
2
Aurel‐Leven was a French financial conglomerate and Leven’s family brokerage and
investment banking firm (id. ¶¶ 19, 52), which has already been dismissed from this
litigation (see Dkt. No. 34).
3
3
In addition to the $500 million seed investment, which constituted the
“Two Year Portfolio element,” the alleged agreement also anticipated a $50
million investment by Leven, which was to function in some way as a
hedge to the $500 million portfolio. (Id. ¶ 54.) This “Hedge Portfolio” was
central to Jonas’s investment strategy. (Id.) Leven, Broll, and Cugny
informed Jonas that the investment was “for and through the funding of
Rashi.” (Id. ¶ 52.) Leven promised that Broll, through Aurel‐Leven and
Gestrust, would help market the fund “once a sufficient track record had
been acquired,” and that Cugny, “Leven’s Swiss agent,” would set up the
investment vehicle through which Leven would form the joint venture
with Jonas. (Id. ¶¶ 56‐57.) There is no writing that captures any part of this
oral understanding.
In June 2006, Leven allegedly sought to modify the agreement. (Id.
¶ 59.) Instead of depositing $500 million in Dutch Book Partners’ Cayman
Islands fund, Leven sought to maintain the money in a segregated account
at Union Bank in Switzerland (“UBS”). Leven still agreed to deposit $50
million as the “initial margin” with the agreed‐upon clearing broker and
reaffirmed that he would pay the above‐outlined fees to Jonas. (Id. ¶¶ 59‐
60, 87.) However, the parties did not reduce this modification to writing.
B. The $50 Million Subscription Agreement between Barneli & Cie
SA and Dutch Book Fund SPC, Ltd.
Certain parties entered into a written investment agreement regarding
the $50 million investment in the summer of 2006.
In late June of that year, Jonas flew to Paris to meet with Leven at the
office of France Vendome and at Leven’s residence to finalize and execute
a Subscription Agreement and Private Placement Memorandum.4 The
Subscription Agreement concerned the purchase of $50 million worth of
The complaint contains a single reference to a Private Placement Memorandum and
otherwise refers to, and relies upon, the Subscription Agreement and a July 1, 2006
“Information Memorandum.” (See id. ¶¶ 61, 70‐76; Ex. C to Burke Decl.)
4
4
shares in the Dutch Book Segregated Portfolio I, a segregated portfolio of
Dutch Book Fund SPC, Ltd. (the “Fund”), a Cayman Islands exempted
company. (Ex. C to Burke Decl.) Before executing the agreement, Leven
sought various changes concerning the lock‐up period and the creation of
a class of stock just for him. (SAC ¶ 61.) At this meeting, Leven and Cugny
informed Jonas that Leven would invest “as the beneficiary of a trust”—
the Redid Trust—which was formed for the benefit of Rashi and would be
administered by Gestrust as trustee. (Id.)
Ultimately, Barneli & Cie SA, a Panamanian corporation of which
Leven was the disclosed principal (id. ¶¶ 4, 15, 72, 85), entered into the
Subscription Agreement to purchase $50 million of Class C shares of the
Dutch Book Segregated Portfolio I. (Subscription Agreement at S‐4, S‐18,
Ex. C to Burke Decl.) The Subscription Agreement and Information
Memorandum provided that the shares would be managed as part of an
investment program established by the investment adviser, Dutch Book
Partners, LLC. (Information Memorandum at ii, v, Ex. C to Burke Decl.;
SAC ¶ 48.)
“[W]hile acting on behalf of Barneli,” Cugny sent the Subscription
Agreement to Fortis, a bank in Ireland,5 which provided wire instructions
regarding the investment. (SAC ¶¶ 63, 65, 75.) Indeed, Cugny executed
the Subscription Agreement, in a “representative capacity,” as the general
attorney for Barneli. (Subscription Agreement at S‐18, Ex. C to Burke Decl.)
Cugny sent additional required documentation to Fortis using his personal
email address, and Fortis sent wiring instructions to Cugny directly. (SAC
¶ 75.) In addition, Cugny, Tanya Tamone, treasurer and director of
Barneli (id. ¶ 11), and Herve Pollet, signed the Subscription Agreement as
“authorized signatories,” i.e., persons authorized to give and receive
Fortis Prime Fund Solutions Bank also has a Cayman Islands location, and the
Subscription Agreement indicates that completed agreements were to be sent there.
(See Subscription Agreement at S‐1, Ex. C to Burke Decl.)
5
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instructions between the Fund and the subscriber, Barneli. (Subscription
Agreement at S‐6, Ex. C to Burke Decl.)
The Subscription Agreement included an indemnification clause, as
follows:
The Subscriber hereby agrees to indemnify the Fund on behalf of the
relevant Portfolio(s), its Directors and officers, the Administrator, the
Investment Adviser and their respective directors, officers, employees,
agents and representatives against any and all liability, costs, claims,
and expenses (including, without limitation, reasonable attorneys[’]
fees for the investigation of and preparation of a defense to any such
liability, claims, costs and expenses) resulting from a breach of any of
the foregoing representations.
(Subscription Agreement at S‐12, Ex. C to Burke Decl.)
The Subscription Agreement also provided that (1) “[n]either this
Subscription Agreement nor any term hereof may be changed, waived,
discharged, or terminated except with the written consent of the
Subscriber and Fund’s Board of Directors” and (2) Cayman Islands law
shall govern the Subscription Agreement. (Id. at S‐11.)
C. Subsequent Negotiations and Liquidation of Barneli’s $50
Million Investment
Trading on the Fund began in August 2006. (SAC ¶ 79.) One month
later, Jonas met with Leven and Rozan at Leven’s home in Cannes, France.
(Id. ¶ 80.) Leven allegedly reiterated his desire to invest more money with
Jonas, but Leven was concerned about his other financial obligations and
the tax implications of transferring $500 million from the UBS account in
Switzerland to a French‐controlled bank. (Id. ¶¶ 80‐81, 92.) Jonas left
France with “assurances that as soon as the technical issues could be
solved, the $500,000,000 plus substantially more would be transferred,”
and Jonas began looking for a non‐French home for the Fund. (Id. ¶¶ 83,
92.)
6
In October of that year, the by‐laws of the Fund were amended to
allow for withdrawals from the $50 million investment “upon 7 days
notice as a result of the specific request of Leven and in reliance on the
continued promise of the minimum management fee of 2% of the $500
million position in U.S. Treasuries.” (Id. ¶ 84.) Leven also told Jonas that
he intended to withdraw money from the Fund despite Jonas’s warnings
that a withdrawal would incur substantial losses. (Id. ¶¶ 85‐89.) In
response to an inquiry from Dutch Book Partners, Cugny confirmed with
Leven that Leven wanted to withdraw $30 million from the Fund. (Id. ¶¶
85‐86.) Leven also insisted that Jonas and Dutch Book Partners continue to
operate the Fund in the same manner as before. (Id. ¶¶ 90‐91.)
Given the incongruity between the actual and expected amount of
money invested—either $500 million or $550 million expected and only
$50 million invested—it is not surprising that the parties’ relationships
soon began to unravel. In May of 2007, Leven called Jonas, who indicated
to Leven that “unless Leven was willing to follow through with the ‘hedge
fund program’ entirely, not just one piece, it could not be marketed to
others and . . . made no sense [to continue as] an outright investment.” (Id.
¶ 93.) Against Jonas’s advice, Leven ordered Jonas, by telephone, to
liquidate the hedge portion of the Fund immediately. (Id. ¶ 94.) Leven
still agreed to “take care” of the fees plaintiffs had theretofore incurred.
(Id. ¶ 95.)
One month later, Jonas met with Leven, Tamone, and Gestrust at
Gestrust’s offices in Geneva, Switzerland. (Id. ¶ 98.) In preparation for
that meeting, Jonas prepared several summaries, which “demonstrat[ed]
the folly of [Leven’s] liquidation requests” and the “significant gains” that
would have been realized had the money remained in the Fund. (Id. ¶¶ 96‐
97.) Instead of discussing the continuation of the joint venture, the
performance of the portfolio, or the payment of Jonas’s outstanding fees,
Leven blamed Jonas for allowing him to liquidate the assets in the Fund.
(Id. ¶¶ 99‐100.)
7
Nonetheless, Jonas thought their business relationship could be
salvaged. Jonas relied on the representations of Tamone—on behalf of
Gestrust—who sought “additional documentation from Jonas under the
guise of considering further investment.” (Id. ¶¶ 101‐02.) But with no
additional investments in sight, in late August 2007, Jonas compiled and
transmitted a financial assessment reflecting the losses he had incurred as
a result of the unreimbursed costs and management fees. (Id. ¶¶ 103‐04.)
As of September 2007, Jonas had not been paid any of the fees he believes
were owed to him. (Id. ¶ 106.)
The investment strategy outlined in the complaint is, at the very least,
complicated. Luckily for this Court and the reader, it is unnecessary for
the purposes of deciding these motions to determine whether this scheme
is a legitimate road to the riches of Croesus or a house of cards destined to
collapse or something in between.
D. The 2008 Litigation
As the relationship soured, the parties began to dispute who was
responsible for the loss of money in the Fund. In early 2008, “at the
specific behest of Leven,” Barneli commenced a lawsuit in New York state
court, seeking to recover the losses sustained on the $50 million
investment made pursuant to the Subscription Agreement. (Id. ¶¶ 15, 107.)
Plaintiffs expended $500,000 in legal fees in their successful defense of that
litigation (id. ¶ 134), which the New York State Supreme Court, Appellate
Division dismissed in May 2012 (id. ¶ 109). During the course of that
litigation, Leven died. (Id. ¶ 4 n.2.)
E.
This Action
Plaintiffs brought this breach of contract action in New York Supreme
Court in June 2013 against eleven defendants: The Estate of Leven, Cugny,
Tamone, Broll, Jean‐Paul Croisier, Gestrust, Barneli, France Vendome,
Aurel‐Leven, the Redid Trust, and Rashi. After plaintiffs filed an amended
8
complaint in February 2014, the action was removed to federal court in
May of last year. (Notice of Removal, Dkt. No. 2.)
The state court gave plaintiffs nearly a year to serve defendants, all of
whom are foreign nationals or corporations, and this Court extended the
deadline to August 18, 2014, almost fourteen months after the original
complaint had been filed. (Dkt. No. 25.)
At this Court’s initial pretrial conference in August 2014, the Court
granted plaintiffs a second opportunity to amend the complaint and
emphasized that plaintiffs should focus on factual allegations supporting
the Court’s exercise of personal jurisdiction over defendants, since
whether or not personal jurisdiction existed was manifestly a threshold
issue. (Aug. 7, 2014 Tr. at 25:8‐19.) The Court underscored two other
points: (1) any remaining service of process must occur on or before
August 18, 2014; and (2) should any Rule 12(b) dismissal motions succeed
following plaintiff’s second amended complaint, the Court would dismiss
the case with prejudice. (Id. at 24:2‐25, 32:18‐23.)
Plaintiffs have filed affidavits of service upon all defendants except
Broll, France Vendome, and the Estate of Leven.6 Plaintiffs attempted to
serve Barneli (Dkt. No. 24), but later acknowledged that that service was
ineffective because Barneli had been dissolved (Aug. 7, 2014 Tr. at 7:2‐7).
Plaintiffs also admit that the Estate of Leven is closed (id. at 6:19‐23).
Accordingly, those entities have not been served with process.
The gravamen of the second amended complaint is that defendants
breached the oral agreement with Jonas by (1) failing to provide the $500
million seed investment necessary to effectuate the Dutch Book investment
strategy; and (2) failing to pay the fees plaintiffs incurred in setting up and
trading the Fund. Plaintiffs seek more than $74 million in unpaid fees and
(See Dkt. Nos. 19‐22, 24, 35‐37; Decl. of Claude Broll in Supp. of Mot. to Dismiss,
dated October 31, 2014 (“Broll Decl.”) ¶ 21 (“I have never been served with a
summons or complaint in this action.”).)
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expected lost profits. In addition, plaintiffs allege that defendants
breached the indemnification provision of the Subscription Agreement by
failing to indemnify plaintiffs for the costs of the 2008 lawsuit brought by
Barneli. Plaintiffs seek to hold most of defendants—Croisier, Cugny,
Tamone, Leven, and Gestrust—liable on an alter ego theory and hold
others—Broll, France Vendome, Gestrust, Redid and Rashi—liable on a
hidden principal theory, which they allege as a separate cause of action.7
Plaintiffs voluntarily dismissed the litigation against Aurel‐Leven without
prejudice in October 2014. (Dkt. No. 34.)
Defendants Broll, Cugny, Tamone, Croisier, Gestrust, and Rashi have
now moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(2)
and 12(b)(6) on the grounds that the Court lacks personal jurisdiction over
them and that plaintiffs have failed to state a claim upon which relief can
be granted. Broll independently moves to dismiss the complaint pursuant
to Fed. R. Civ. P. 12(b)(5) for insufficient service of process. Because
plaintiffs have failed to make a prima facie showing that this Court has
personal jurisdiction over the moving defendants, their respective motions
to dismiss the complaint are granted.
II. LEGAL STANDARD
“The lawful exercise of personal jurisdiction by a federal court
requires satisfaction of three primary requirements.” Licci ex rel. Licci v.
Lebanese Canadian Bank, SAL, 673 F.3d 50, 59 (2d Cir. 2012). First, “the
plaintiff’s service of process upon the defendant must have been
procedurally proper”; second, “there must be a statutory basis for personal
At times, plaintiffs argue inconsistently which defendant is liable pursuant to what
theory. For instance, plaintiffs allege that Gestrust was an alter ego of Barneli (see, e.g.,
SAC ¶ 138), but then chastise Gestrust for analyzing its liability under plaintiffs’ own
alter ego theory, admitting that Gestrust could not be an alter ego of Barneli (Pls.’
Mem. of Law in Opp’n to Def. Gestrust SA’s Mot. to Dismiss (“Pls.’ Opp’n Gestrust”)
at 12‐13, Dkt. No. 68).
7
10
jurisdiction that renders such service of process effective”; and third, “the
exercise of personal jurisdiction must comport with constitutional due
process principles.” Id. at 59‐60.
The plaintiff bears the burden of establishing jurisdiction and must
make a prima facie showing that jurisdiction exists. See Penguin Grp.
(USA) Inc. v. Am. Buddha, 609 F.3d 30, 34‐35 (2d Cir. 2010). “Such a
showing entails making legally sufficient allegations of jurisdiction,
including an averment of facts that, if credited[,] would suffice to establish
jurisdiction over the defendant.” Id. at 35 (internal quotation marks
omitted). The plaintiff must also “establish the court’s jurisdiction with
respect to each claim asserted.” Sunward Elecs., Inc. v. McDonald, 362 F.3d
17, 24 (2d Cir. 2004).
In deciding a motion to dismiss a complaint for want of personal
jurisdiction, the district court may consider materials outside the
pleadings, including affidavits and other written materials. MacDermid,
Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012); Bensusan Rest. Corp. v. King,
937 F. Supp. 295, 298 (S.D.N.Y. 1996), aff’d, 126 F.3d 25 (2d Cir. 1997). The
court assumes the verity of the allegations “to the extent they are
uncontroverted by the defendant’s affidavits.” MacDermid, Inc., 702 F.3d
at 727 (internal quotation marks omitted). Nonetheless, all factual doubts
or disputes are to be resolved in the plaintiff’s favor. See, e.g., A.I. Trade
Fin., Inc. v. Petra Bank, 989 F.2d 76, 79–80 (2d Cir. 1993).
In diversity cases such as this, a district court looks to the law of the
state in which it sits to determine whether it has personal jurisdiction over
foreign defendants. See Int’l Shoe Co. v. State of Wash., Office of Unemp’t
Comp. & Placement, 326 U.S. 310 (1945); Bank Brussels Lambert v. Fiddler
Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). This Court will
therefore look to New York law to determine whether it may exercise
personal jurisdiction over defendants.
Pursuant to N.Y. C.P.L.R. § 301, a defendant is subject to personal
jurisdiction if he is domiciled in New York, served with process in New
11
York, or continuously and systematically does business in New York. See
Landoil Res. Corp. v. Alexander & Alexander Servs., Inc., 77 N.Y.2d 28, 33
(1990); Pichardo v. Zayas, 122 A.D.3d 699, 702, 996 N.Y.S.2d 176, 180 (2d
Dept. 2014); see also Wells Fargo Bank Minnesota, N.A. v.
ComputerTraining.Com, Inc., No. 04‐Cv‐0982, 2004 WL 1555110, at *2‐3
(S.D.N.Y. July 9, 2004). In addition, a defendant may be subject to New
York’s long‐arm statute, N.Y. C.P.L.R. § 302, if he engages in the following
acts either in person or through an agent and such acts relate to an asserted
claim: (1) transacts any business within the state or contracts anywhere to
supply goods or services in the state; (2) commits a tortious act within the
state; (3) commits a tortious act outside the state but injures a person or
property in the state; or (4) owns, uses, or possesses any real property in
the state. N.Y. C.P.L.R. § 302(a).
III. DISCUSSION
Defendants seek dismissal on several grounds pursuant to Rule 12(b).
The Court considers the jurisdictional questions first, see Ruhrgas AG v.
Marathon Oil Co., 526 U.S. 574, 584 (1999), finds that they dispose of each of
the pending motions, and therefore does not reach the issue of whether the
complaint sets forth valid claims for relief pursuant to Rule 12(b)(6) or
whether service of process on Broll was sufficient.8
Although plaintiffs and Broll agree that he has not been served with process, they
disagree as to how the Court should dispose of his pending motion to dismiss the
complaint. Plaintiffs assert that there is “nothing to dismiss” because “there is no
pending action against Mr. Broll.” (Letter from Ethan Leonard to Judge Stein, dated
Jan. 22, 2015, Dkt. No. 77.) Broll counters that the action is pending even though he
has not been served and asks the Court to rule on the substantive merit of his motion.
(Letter from Xavier Bailliard to Judge Stein, dated Jan. 23, 2015, Dkt. No. 78.) Broll is
correct that the Court may dismiss an unserved defendant’s motion to dismiss with
prejudice where the claims are deficient and an extension of time to serve would be
futile, see, e.g., Cuello v. Lindsay, No. 09‐CV‐4525, 2011 WL 1134711, at *1 n.2 (E.D.N.Y.
Mar. 25, 2011); Ford v. Depʹt of Soc. Servs., No. 10 CIV. 3800, 2011 WL 1458138, at *7
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A. The Complaint Fails to Allege Facts Sufficient for this Court’s
Exercise of Personal Jurisdiction over Defendants
In moving to dismiss, defendants argue in various forms that (1) they
are foreign individuals or corporations who have not conducted any
business in New York, whether in person or through an agent, and (2)
Barneli’s commencement of a lawsuit in New York, effectively availing
itself of the protections of New York state and its laws, does not confer
personal jurisdiction because the complaint fails to allege that Barneli was
the agent or alter ego of defendants.
In opposition, plaintiffs contend that personal jurisdiction exists
pursuant to N.Y. C.P.L.R. §§ 302(a)(1) and 302(a)(3) because plaintiffs
negotiated the contracts from New York and defendants caused economic
injury to plaintiffs in New York. They further assert that personal
jurisdiction is proper pursuant to N.Y. C.P.L.R. § 303, which provides for
the designation of an agent of service in New York—in certain limited
instances—where a defendant has previously commenced a separate
lawsuit in New York.
1.
N.Y. C.P.L.R. § 301
Defendants are not subject to general personal jurisdiction pursuant to
N.Y. C.P.L.R. § 301. They are all foreign individuals and corporations9 that
(S.D.N.Y. Mar. 22, 2011), and the Court will do so here, having found that it lacks
personal jurisdiction over Broll even assuming he had been served properly.
(See SAC ¶¶ 5, 9, 11, 13, 16, 21; Decl. of Def. Tanya Tamone, dated Oct. 31, 2014
(“Tamone Decl.”) ¶¶ 3‐5 (Swiss residence); Decl. of Def. Jacques Cugny, dated
October 29, 2014 (“Cugny Decl.”) ¶¶ 4‐6 (Swiss residence); Decl. of Def. Jean‐Paul
Croisier, dated Oct. 31, 2014 (“Croisier Decl.”) ¶¶ 3‐5 (Swiss residence); Broll Decl.
¶¶ 1‐2 (Belgian residence and French citizenship); Decl. of Itzik Turgeman in Supp. of
the Rashi Foundation’s Mot. to Dismiss the Second Am. Compl., dated Oct. 23, 2014
(“Turgeman Decl.”) ¶ 3 (Israel as the only place of business of Rashi, an Israeli
nonprofit association); Decl. of Marc P. Angst in Supp. of Mot. of Gestrust SA to
Dismiss Second Am. Compl., dated Oct. 29, 2014 (“Angst Decl.”) ¶¶ 1‐2 (Swiss
location of Gestrust, a Swiss trust and fiduciary company).)
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do not systematically and continuously do business in New York, and
plaintiffs do not argue otherwise.
2.
N.Y. C.P.L.R. § 302(a)(1)—transaction of business within the
state
Turning to specific personal jurisdiction pursuant to N.Y. C.P.L.R.
§ 302(a)(1), plaintiffs’ allegations fail to establish that any defendant
transacted business in New York within the meaning of the statute.
a.
Count One—Breach of the Oral Agreement Between Leven and
Jonas
The Court first analyzes whether defendants transacted business in
New York—and are thereby subject to personal jurisdiction under N.Y.
C.P.L.R. § 302(a)(1)—in relation to Count One of the SAC.10
“Whether a non‐domiciliary is transacting business within the
meaning of CPLR 302(a)(1) is a fact based determination, and requires a
finding that the non‐domiciliary’s activities were purposeful and
established ‘a substantial relationship between the transaction and the
claim asserted.’” Paterno v. Laser Spine Inst., 24 N.Y.3d 370, 376 (2014).
“Purposeful activities are volitional acts by which the non‐domiciliary
‘avails itself of the privilege of conducting activities within the forum
State, thus invoking the benefits and protections of its laws.’” Id. (quoting
Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007)). “More than limited contacts
are required for purposeful activities sufficient to establish that the non‐
domiciliary transacted business in New York.” Paterno, 24 N.Y.3d at 376.
New York case law makes pellucid that “it is the quality of the defendants’
Count Three of the SAC—alleging alter ego/hidden principal liability—is not a
cognizable cause of action, but a means to impose liability on the moving defendants
under the substantive counts, see, e.g., Morris v. New York State Depʹt of Taxation & Fin.,
82 N.Y.2d 135, 141 (1993); Taberna Capital Mgmt., LLC v. Dunmore, No. 08 Civ. 1817,
2009 WL 2850685, at *4 (S.D.N.Y. Sept. 2, 2009), and therefore the Court analyzes the
agency/alter ego issues, as they arise, in relation to Counts One and Two.
10
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New York contacts that is the primary consideration” in a 302(a)(1)
analysis. Fischbarg, 9 N.Y.3d at 380; see also Royalty Network Inc. v.
Dishant.com, LLC, 638 F. Supp. 2d 410, 417‐18 (S.D.N.Y. 2009).
The U.S. Court of Appeals for the Second Circuit has also delineated
four factors that guide the section 302(a)(1) inquiry:
(i) whether the defendant has an on‐going contractual relationship
with a New York corporation; (ii) whether the contract was negotiated
or executed in New York and whether, after executing a contract with
a New York business, the defendant has visited New York for the
purpose of meeting with parties to the contract regarding the
relationship; (iii) what the choice‐of‐law clause is in any such contract;
and (iv) whether the contract requires . . . payments into the forum
state or subjects [defendants] to supervision . . . in the forum state.
Sunward Elecs., Inc., 362 F.3d at 22. The “pivotal inquiry” is whether
the defendant has “performed purposeful acts in New York in relation to
the contract.” Bonsey v. Kates, 13 Civ. 2708, 2013 WL 4494678, at *4
(S.D.N.Y. Aug. 21, 2013) (internal quotation marks omitted).
As a starting place, it is helpful to review some of the key facts alleged
in support of plaintiffs’ first breach of contract claim. In 2006, Jonas and
Leven allegedly entered into an oral agreement by which Leven agreed to
provide a $500 million seed investment and Jonas agreed to create and
manage the Dutch Book plus a hedge portfolio for a minimum of two
years. (SAC ¶ 53.) All in‐person meetings, both before and after this
agreement was entered into, took place in France or Switzerland. (SAC
¶¶ 45, 61, 80, 98.) Leven first approached Jonas in Paris where Jonas was
making a presentation about his low‐risk investment strategy. (Id. ¶¶ 44‐
45.) The only individual defendants remotely involved in the early stages
of Leven and Jonas’s relationship are Cugny, Leven’s lawyer and a Swiss
citizen and resident who attended two meetings in France (id. ¶¶ 5, 43, 57,
61), and Broll, a French citizen and resident (at that time) who attended the
initial meeting in France (id. ¶¶ 9, 43).
15
The money for the $500 million seed investment—which Leven never
provided to Jonas—was located at Union Bank in Switzerland. (Id.
¶¶ 53(b), 81, 114(b).) There are no allegations that this money ever flowed
to New York.
The only money that Leven in fact provided—$50 million through
Barneli, a Panamanian corporation—went from UBS in Switzerland to
FIMAT, the clearing broker—which is part of Societe Generale, a French
bank—where it was to be invested in shares of a Cayman Islands fund.
(Subscription Agreement at S‐5, Ex. C to Burke Decl.; SAC ¶¶ 81, 87.) The
parties to the Subscription Agreement were Barneli, as subscriber, and
Dutch Book Fund SPC, Ltd., a Cayman Islands entity. (Subscription
Agreement at S‐18, Ex. C to Burke Decl.) Cugny executed the agreement
as a representative of Barneli, and he and Tamone, a British citizen and
Swiss resident, signed the agreement as authorized signatories of Barneli.
(Subscription Agreement at S‐6, S‐18, Ex. C to Burke Decl.; SAC ¶ 11.)
Gestrust, a Swiss trust company, served as a trustee of the Bahamian entity
that owned shares of Barneli, and signed an exhibit to the Subscription
Agreement denoting its role as trustee. (SAC ¶ 20; Ex. C to Angst Decl.)
The Subscription Agreement is governed by Cayman Islands law.
(Subscription Agreement at S‐11, Ex. C to Burke Decl.) Jonas sent the
related Information Memorandum—which appointed Dutch Book
Partners, LLC, a Delaware limited liability company, as investment
adviser—to defendants in Switzerland and France. (SAC ¶ 74; Information
Memorandum at v, Ex. C to Burke Decl.)
The individual defendants also engaged in several international
communications related to the Subscription Agreement. Cugny asked that
the documentation related to the Subscription Agreement be sent to
Switzerland (id. ¶¶ 64, 75), and he sent the executed agreement to Fortis in
Ireland or the Cayman Islands (id. ¶¶ 65, 75; see n.5, supra). Cugny also
responded to someone from Dutch Book Partners regarding the partial
withdrawal of the $50 million hedge, but plaintiffs do not allege that the
16
Dutch Book Partners representative was located in New York. (SAC ¶¶ 85‐
86.) After the full liquidation of the $50 million investment—by Leven,
over the telephone—Tamone met with Jonas in Switzerland in June 2007.
(SAC ¶ 98; Tamone Decl. ¶ 9.) During that summer, Tamone also sought
documentation from Jonas under the alleged guise of considering further
investment. (Id. ¶ 101; Tamone Decl. ¶ 10.)
This factual recitation reveals the astonishing lack of allegations
linking plaintiffs’ first cause of action to New York. There are no
allegations in the complaint that the oral agreement or the Subscription
Agreement was negotiated in New York; or that the foreign defendants
traveled to New York at any time whatsoever for purposes of engaging in
any business transaction connected to these agreements. Similarly, there
are no allegations to substantiate plaintiffs’ contention that the investments
were to be effectuated in New York nor are there allegations to satisfy any
of the Sunward factors. As for defendant Croisier, plaintiffs fail to allege
even a single fact in support of his involvement in the transaction, save for
a bare allegation that he was president and director of Barneli. (SAC ¶ 13.)
The only allegation tying the first cause of action to New York is that
Jonas’s principal place of business is located in New York County. (Id.
¶ 1.) Even if the Court were to assume—without any allegation to support
it—that Jonas was working in New York when Tamone reached out to him
from Switzerland in the summer of 2007 (id. ¶ 101), or that the Dutch Book
Partners representative was in New York when Cugny responded to him
(id. ¶ 86), those allegations are simply insufficient to confer personal
jurisdiction here. See Intʹl Customs Assocs., Inc. v. Ford Motor Co., 893 F.
Supp. 1251, 1261‐62 (S.D.N.Y. 1995) (“Telephone calls and correspondence
sent into New York, by a non‐domiciliary defendant who is outside New
York, generally are insufficient to establish personal jurisdiction.”
(collecting cases)), affʹd, 201 F.3d 431 (2d Cir. 1999); Metals Alliance Corp. v.
Beshay, No. 97‐CV‐3401, 1998 WL 811788, at *2 (S.D.N.Y. Nov. 19, 1998)
(“[O]nly in cases where the telephone call or communication clearly shows
17
that the defendant intends to project itself into ongoing New York
commerce, such as where a defendant directly conducts market activity or
securities transactions in New York over the telephone, do New York
courts sustain jurisdiction based on telephone calls or facsimile
transmissions alone.” (internal quotation marks omitted)); see also Kimco
Exch. Place Corp. v. Thomas Benz, Inc., 34 A.D.3d 433, 434, 824 N.Y.S.2d 353,
354 (2d Dept. 2006) (“The defendants’ acts of faxing the executed contracts
to New York and of making a few telephone calls do not qualify as
purposeful acts constituting the transacting of business.”).
Plaintiffs’ contention that the Court has personal jurisdiction because
Jonas built out an office in New York, hired personnel, and performed
trades and analyses here is also unavailing. Notwithstanding the fact that
there are no specific allegations about Jonas’s work in New York in the
complaint, his unilateral activity in the forum state would be insufficient to
establish jurisdiction. See Intʹl Customs, 893 F. Supp. at 1262 (“The
appropriate focus of an inquiry under C.P.L.R. § 302(a)(1) is on what the
non‐domiciliary defendant did in New York and not on what the plaintiffs
did.”) New York courts have consistently held that the unilateral acts of
plaintiffs in the forum state do not support jurisdiction over a non‐
domiciliary defendant. See, e.g., Ferrante Equip. Co. v. Lasker‐Goldman Corp.,
26 N.Y.2d 280, 285 (1970); SunLight Gen. Capital LLC v. CJS Invs. Inc., 114
A.D.3d 521, 522, 981 N.Y.S.2d 390, 391 (1st Dept. 2014); Mortg. Funding
Corp. v. Boyer Lake Pointe, LC, 379 F. Supp. 2d 282, 287‐88 (E.D.N.Y. 2005)
(“Even though the Plaintiff may have expended time, energy and
resources in New York . . . carrying out [its] obligations under the alleged
contract, the Plaintiff’s business interactions with New York are not at
issue when assessing personal jurisdiction. Rather, the Court must
evaluate the Defendants’ activities and conduct” in New York.).
Moreover, Leven learned about Jonas’s investment strategy when he
attended Jonas’s presentation in Paris. (SAC ¶ 45.) Since plaintiffs
marketed their services internationally, “not just within the State of New
18
York . . . [Leven], in contracting with [] plaintiff[s], w[as] not seeking to
take advantage of a field particular to New York.” Kimco, 34 A.D.3d at
434.
In sum, no defendant transacted business in New York in relation to
plaintiffs’ first breach of contract claim, and therefore personal jurisdiction
does not exist over defendants pursuant to N.Y. C.P.L.R. § 302(a)(1).
b.
Count Two—Breach of the Indemnification Clause of the
Subscription Agreement
For this second cause of action, plaintiffs allege that defendants are
subject to personal jurisdiction because Barneli filed a lawsuit in the state
of New York in 2008, effectively availing itself of “the privilege of
conducting activities within the forum State” and invoking the
“protections of its laws.” Paterno, 24 N.Y.3d at 376 (internal quotation
marks omitted); (see, e.g., SAC ¶ 8.) Plaintiffs’ second cause of action arises
from this activity insofar as plaintiffs seek the recovery of legal fees
incurred in defending the Barneli lawsuit. Nonetheless, the Barneli
litigation cannot provide a basis for jurisdiction over the moving
defendants unless the acts of Barneli are attributable to them under an
agency or alter ego theory. The Court will analyze each in turn.
i.
Agency Theory
For purposes of section 302(a)(1), the Court may attribute the acts of a
corporation to individual defendants under an agency theory where (1) the
corporation engages in purposeful activity in the forum state that relates to
the transaction underlying the lawsuit, (2) the corporation’s activity was
taken for the benefit of and with the knowledge and consent of the
defendant, and (3) the defendant exercised some control over the
purposeful activity. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467
(1988); see also H.S.W. Enters., Inc. v. Woo Lae Oak, Inc., 171 F. Supp. 2d 135,
145 (S.D.N.Y. 2001). “To make a prima facie showing of control, a plaintiff’s
allegations must sufficiently detail the defendant’s conduct so as to
19
persuade a court that the defendant was a primary actor in the specific
matter in question; control cannot be shown based merely upon a
defendant’s title or position within the corporation, or upon conclusory
allegations that the defendant controls the corporation.” ADP Inv’r
Commcʹn Servs., Inc. v. In House Attorney Servs., Inc., 390 F. Supp. 2d 212,
219 (E.D.N.Y. 2005) (internal quotation marks omitted). The moving
defendants may therefore be subject to jurisdiction if Barneli—in bringing
the 2008 lawsuit—was their agent, acting at their specific direction and for
their personal benefit.
The individual defendants—Cugny, Tamone, Broll, and Croisier—are
not subject to personal jurisdiction on this agency theory because none is
alleged to have personally benefited from Barneli’s actions in bringing the
lawsuit in New York. Although plaintiffs allege that Cugny, Tamone, and
Croisier were officers or directors of Barneli (SAC ¶¶ 5, 11, 13), plaintiffs
do not allege that any of these defendants was a shareholder or owner of
the Panamanian corporation. (See id. ¶ 9; Broll Decl. ¶¶ 18, 19 (disclaiming
any ownership or beneficial interest in Barneli or the New York lawsuit);
Croisier Decl. ¶¶ 6, 14‐15 (same); Cugny Decl. ¶¶ 7, 16‐17 (same); Tamone
Decl. ¶¶ 6, 19‐20 (same).)
Instead, plaintiffs allege—with no factual basis set forth—that
Croisier, Cugny, and Tamone “used their power over Barneli to further
their personal interests and those of Broll.” (SAC ¶ 141.) This conclusory
allegation fails to plausibly establish that Barneli was acting for Broll,
Croisier, Cugny, or Tamone’s individual benefit when Barneli filed the
lawsuit in New York. These defendants are therefore not subject to
jurisdiction on an agency theory. Compare Sterling Interiors Grp., Inc. v.
Haworth, Inc., No. 94 CIV. 9216, 1996 WL 426379, at *15 (S.D.N.Y. July 30,
1996) (no long‐arm jurisdiction under Kreutter where defendants were not
alleged to be shareholders of the corporation and therefore “the
corporation cannot be viewed as having acted on their behalf, for their
benefit”), with Moneygram Payment Sys., Inc. v. Consorcio Oriental, S.A., No.
20
05 Civ. 10773, 2007 WL 1489806, at *5 (S.D.N.Y. May 21, 2007) (long arm
jurisdiction under Kreutter, where the defendant, as “a major shareholder
. . . , benefitted from Consorcio’s New York transactions”).
The agency theory also does not support jurisdiction over Rashi or
Gestrust. Plaintiffs’ bald allegations that Rashi was a hidden principal of
Barneli find no factual support in the complaint. (See, e.g., SAC ¶¶ 22, 36,
139.) Plaintiffs do not allege that Rashi in any way directed or controlled
Barneli when it sued plaintiffs in New York or that it had any ownership
interest in Barneli. (See generally SAC; Turgeman Decl. ¶¶ 9, 11‐12
(averring that Rashi never controlled Barneli, had no ownership interest in
the entity, and was not involved in the commencement of the 2008
lawsuit).) Accordingly, Barneli’s actions cannot fairly be imputed to Rashi.
See, e.g., Briley v. Blackford, No. 89 CIV. 8365, 1990 WL 124341, at *7‐8
(S.D.N.Y. Aug. 21, 1990).
Similarly, the Court declines to exercise personal jurisdiction over
Gestrust as a “hidden principal” of Barneli. (SAC ¶ 139.) Plaintiffs do not
allege that Gestrust was the primary actor or controlled Barneli’s decision
to bring the 2008 lawsuit in New York. Rather, plaintiffs’ allegations
underscore that the lawsuit was filed “at the specific behest of Leven,” the
disclosed principal of Barneli. (SAC ¶¶ 15, 106; see also id. ¶¶ 72, 85.)
Moreover, although plaintiffs allege, in one paragraph, that Gestrust was
the sole shareholder of Barneli (id. ¶ 16),11 plaintiffs also allege—and the
materials accompanying Gestrust’s motion support—that Gestrust actually
served as trustee to the Redid Trust, which owned shares of Barneli (see
SAC ¶ 16; Exhibit VIII to the Subscription Agreement, Ex. C to Angst Decl.
(noting that Gestrust was a trustee of Barneli); Angst Decl. ¶¶ 3‐4).
Serving as a trustee for an entity that owned shares of Barneli—with no
factual allegations as to Gestrust’s specific role in initiating and
Plaintiffs, in opposition to Gestrust’s motion, actually reject this position, asserting
that Gestrust was not a shareholder of Barneli. (Pls.’ Opp’n Gestrust at 12.)
11
21
prosecuting Barneli’s lawsuit—is plainly insufficient to confer jurisdiction
here. See, e.g., Phillips v. Reed Grp., Ltd., 955 F. Supp. 2d 201, 231 (S.D.N.Y.
2013) (“Certainly, Nagel’s mere status as an alleged ‘trustee’ of an entity
that owns a stake in the [defendant who acted in New York] is insufficient
to suggest that [that defendant] or others acted in New York at Nagel’s
direction and control.”)12
ii.
Alter Ego Theory
Plaintiffs also allege that various defendants, including Croisier,
Cugny, Tamone, Broll, and Gestrust, are alter egos of Barneli (SAC ¶¶ 38,
138) and therefore may be subject to jurisdiction for Barneli’s actions in
New York. Under an alter ego theory, plaintiffs allege that Barneli was a
shell corporation under the complete domination and control of
defendants and is not entitled to a legal identity separate from them.
To determine which law to apply to plaintiffs’ alter ego allegations,
this Court must employ a choice‐of‐law analysis. “When a federal district
court sits in diversity, it generally applies the law of the state in which it[]
sits, including that state’s choice of law rules.” In re Coudert Bros. LLP, 673
F.3d 180, 186 (2d Cir. 2012) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941)). It is well‐settled that New York’s choice‐of‐law rules
dictate that “the law of the state of incorporation determines when the
corporate form will be disregarded.” Fletcher v. Atex, Inc., 68 F.3d 1451,
1456 (2d Cir. 1995) (internal quotation marks omitted); Sweeney, Cohn, Stahl
& Vaccaro v. Kane, 6 A.D.3d 72, 75, 773 N.Y.S.2d 420, 423 (2d Dept. 2004).
“Because a corporation is a creature of state law whose primary purpose is
to insulate shareholders from legal liability, the state of incorporation has
the greater interest in determining when and if that insulation is to be
stripped away.” Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d
Cir. 1993) (internal quotation marks omitted) (applying the law of the state
Gestrust was also removed as trustee for Redid before Barneli sued plaintiffs in
April 2008. (Angst Decl. ¶¶ 3‐4; see also Ex. A to Angst Decl.)
12
22
of incorporation even where the applicable contract contained a differing
choice‐of‐law provision).
Since Barneli was incorporated in the Republic of Panama (SAC ¶ 15),
this Court will apply Panama’s veil‐piercing doctrine to plaintiffs’ alter
ego allegations. See, e.g., Panam Mgmt. Grp., Inc. v. Pena, No. 08‐CV‐2258,
2011 WL 3423338, at *3 (E.D.N.Y. Aug. 4, 2011).
In determining foreign law, a court may “consider any relevant
material or source, including testimony, whether or not submitted by a
party or admissible under the Federal Rules of Evidence.” Fed. R. Civ. P.
44.1. However, “the party claiming foreign law applies carries both the
burden of raising the issue that foreign law may apply in an action and the
burden of proving foreign law to enable the district court to apply it in a
particular case.” Bigio v. Coca‐Cola Co., No. 97 CIV. 2858, 2010 WL 3377503,
at *4 (S.D.N.Y. Aug. 23, 2010) (internal quotation marks omitted), aff’d, 675
F.3d 163 (2d Cir. 2012). Written and oral testimony from experts, who are
“not required to meet any special qualifications,” remains the “basic mode
of proving foreign law.” Id. The expert testimony should help the court
understand the content of the governing law, but courts need not credit
the experts’ application of law to the facts of the case. Id. The court may
also “rely on the decisions of other courts” in determining foreign law.
Panam Mgmt. Grp., 2011 WL 3423338, at *4.
Cugny, Tamone, and Croisier submitted the expert testimony of Jorge
Molina Mendoza, an attorney in the Republic of Panama, in support of
their motion to dismiss the complaint. Gestrust and Broll also rely on
Mendoza’s testimony in their respective motions. Plaintiffs did not submit
any evidence—in the form of an expert declaration or otherwise—
regarding Panama’s veil‐piercing doctrine.
According to Mendoza, the Code of Commerce of the Republic of
Panama recognizes the creation of the corporate veil: that is, a “business
corporation organized according to the provisions of [the Code of
Commerce] shall have its own juridical status and different from that of
23
the shareholders for all its acts and contracts.” (Decl. Setting Forth
Panamanian Legal Opinion of Jorge Molina Mendoza (“Mendoza Decl.”)
at 3 (quoting Article 251 of the Code of Commerce of the Republic of
Panama).) Likewise, pursuant to Article 444 of the Code of Commerce,
“[d]irectors shall not assume any personal liability for the corporation’s
obligations” except in certain limited circumstances not relevant here. (Id.
at 7‐8); see also Panam Mgmt. Grp., 2011 WL 3423338, at *4 (noting that,
pursuant to Panamanian law, “shareholders, directors and officers are not
liable to pay with their personal assets for their rights and obligations
acquired by the corporation, regardless of whether they acted on behalf of
the corporation” (internal quotation marks omitted)).
Legislation in Panama “does not provide for mechanisms to tear the
corporate veil,” but the Supreme Court of Justice of Panama has
recognized that it may occur in “exceptional circumstances” and on a
“provisional basis,” where “corporations have been used with the sole
intention of defrauding third parties or violating the law, thus resulting in
a case of abuse of the legal capacity.” (Mendoza Decl. at 2, 5‐6); see also
Panam Mgmt. Grp., 2011 WL 3423338, at *5. “The criterion used by
[Panamanian courts] to tear the corporate veil always has as common
denominator the fact that the shareholders have not respected the legal
entity, as well as the breach of the principle of separation of personalities,
to reach those hidden behind it.” (Mendoza Decl. at 5‐6.)
Plaintiffs’ allegations fail to hurdle the high bar set by Panamanian
precedent. There are no allegations that Broll—who was not a
shareholder, director, or officer of Barneli—somehow disregarded
Barneli’s legal status. Putting aside plaintiffs’ contradictory allegation that
Gestrust was a shareholder of Barneli, plaintiffs themselves recognize in
their brief that “Gestrust [wa]s not an employee, shareholder, officer or
owner of Barneli” and therefore renounce any alter ego allegations. (Pls.’
Opp’n Gestrust at 12.) Although it is unclear based on plaintiffs’ muddled
allegations whether Rashi is alleged to be an alter ego of Barneli, the same
24
result holds for Rashi, as it was not a shareholder, officer, or director of
Barneli.
Turning to Cugny, Tamone, and Croisier, the Court finds that
plaintiffs have failed to allege a factual basis for piercing the corporate veil
to reach these directors of Barneli. First, there are no specific allegations
that these individual defendants failed to respect Barneli’s legal
personality aside from the naked, conclusory, and formulaic allegations
that they undercapitalized Barneli, ignored corporate formalities, and
dominated its affairs. (SAC ¶¶ 141‐44, 146.) In fact, plaintiffs assert all but
one of these allegations against “the individual defendants” or
“defendants” generally, without specifying the role of Cugny, Tamone, or
Croisier in abusing the corporate form to perpetuate a fraud.13 See Karabu
Corp. v. Gitner, 16 F. Supp. 2d 319, 324 (S.D.N.Y. 1998); cf. De Jesus v. Sears,
Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996) (affirming the dismissal of
claims against an alleged alter ego where the plaintiffs’ allegations were
conclusory and “devoid of any specific facts” that defendants acted to
defraud plaintiffs); Strojmaterialintorg v. Russian Am. Commercial Corp., 815
F. Supp. 103, 104‐05 (E.D.N.Y. 1993).
Moreover, to the extent that defendants’ expert avers that Panamanian
courts will only pierce the corporate veil to reach shareholders—but not
directors—who use the corporate form to commit illicit acts in Panama (see
Mendoza Decl. at 6‐8); but see Panam Mgmt. Grp., 2011 WL 3423338, at *5,
Cugny, Tamone, and Croisier cannot be responsible for—or subject to
personal jurisdiction based on—the actions of Barneli.
Plaintiffs’ allegations that Cugny once used his personal email address to email
Fortis, when he was presumably working on behalf of Barneli, or that he used the
same fax number as Barneli are certainly insufficient to find that Cugny breached the
principle of the separation of personalities. (See SAC ¶¶ 69, 75.)
13
25
In conclusion, N.Y. C.P.L.R. § 302(a)(1) fails to provide a basis for this
Court to exercise personal jurisdiction over the moving defendants for the
breach of contract claims in the complaint.
3.
N.Y. C.P.L.R. § 302(a)(3)(ii)—commission of a tortious act
outside the state causing injury within the state
Plaintiffs find no greater success invoking section 302(a)(3)(ii), which
permits the exercise of jurisdiction over a foreign defendant who “commits
a tortious act without the state causing injury to person or property within
the state . . . , if he expects or should reasonably expect the act to have
consequences in the state and derives substantial revenue from interstate
or international commerce.” Plaintiffs assert that they suffered the loss of
fees for work performed in New York as well as future profits and
business investors.
New York courts routinely hold that a breach of contract claim does
not constitute a tortious act and may not form the basis of long‐arm
jurisdiction pursuant to section 302(a)(3). See, e.g., Amigo Foods Corp. v.
Marine Midland Bank‐New York, 39 N.Y.2d 391, 396 (1976); Pramer S.C.A. v.
Abaplus Int’l Corp., 76 A.D.3d 89, 97, 907 N.Y.S.2d 154, 159 (1st Dept. 2010);
see also PI, Inc. v. Quality Prods., Inc., 907 F. Supp. 752, 760 (S.D.N.Y. 1995)
(“To satisfy New York’s long arm statute, the complaint must ‘adequately
frame a cause of action in tort arising from [the alleged tortious acts].’”)
Plaintiffs’ first two substantive causes of action are expressly denoted
“Breach of Contract—Fees” and “Breach of Contract—Indemnification” in
the complaint. As explained above, the third cause of action for alter
ego/hidden principal liability is not separately cognizable pursuant to
New York law, but is rather a mechanism to hold defendants liable under
the two breach of contract causes of action.
Nonetheless, plaintiffs contend that they have alleged a tort because
they include the word “fraud” in a handful of allegations and allege that
defendants intended to “perpetuate a fraud and effectuate the breach of
26
the agreements” by depriving plaintiffs of the money owed to them
pursuant to the agreements. (SAC ¶ 39; see also id. ¶¶ 17, 145‐46.) But “[b]y
merely alleging a tortious act, a plaintiff may not convert a simple breach
of contract case into a tort for jurisdictional purposes.” Kulas v. Adachi, No.
96 CIV. 6674, 1997 WL 256957, at *8 (S.D.N.Y. May 16, 1997); see, e.g., Amigo
Foods Corp., 39 N.Y.2d at 396.
Rather, plaintiffs must “aver facts that if credited, would suffice to
establish all the requirements under one of § 302(a)’s subsections,
including the commission of a tort,” here, fraud. Bank Brussels Lambert, 171
F.3d at 785. Plaintiffs’ allegations of fraud—including their allegations
that defendants used a fraudulent shell corporation scheme to deprive
Jonas of his fees (SAC ¶ 39) and proprietary strategies (id. ¶ 145)—are
wholly conclusory14 and fail to identify a legal duty separate from the
contractual duty to pay his fees. See Clark‐Fitzpatrick, Inc. v. Long Island
R.R. Co., 70 N.Y.2d 382, 389‐90 (1987); Skrodzki v. Marcello, 810 F. Supp. 2d
501, 521 (E.D.N.Y. 2011); Kulas, 1997 WL 256957, at *9 (“[W]here a fraud
claim arises out of the same facts as plaintiff’s breach of contract claim,
with the addition only of an allegation that defendant never intended to
perform the precise promises spelled out in the contract between the
parties, the fraud claim is redundant and plaintiff’s sole remedy is for
breach of contract.” (internal quotation marks omitted)).
Moreover, plaintiffs fail to allege facts sufficient to establish that each
defendant derives substantial revenue from interstate or international
commerce. See SunLight Gen. Capital, 114 A.D.3d at 522 (no personal
jurisdiction pursuant to section 302(a)(3)(ii) “in the absence of evidence
that these defendants ‘derive substantial revenue from interstate or
The complaint is bereft of any factual allegation related to defendants’ purported
use of Jonas’s trading strategies. In fact, there is not a single allegation as to who
stole, implemented, or profited from these strategies.
14
27
international commerce’”); Mangia Media Inc. v. Univ. Pipeline, Inc., 846 F.
Supp. 2d 319, 323 (E.D.N.Y. 2012).
4.
N.Y. C.P.L.R. § 302(a)(4)—ownership of real property in New
York
Section 302(a)(4) permits the court to exercise jurisdiction arising out
of a defendant’s ownership or possession of “real property situated within
the state,” but this subsection requires “a relationship between the
property and the cause of action sued upon.” Lancaster v. Colonial Motor
Freight Line, Inc., 177 A.D.2d 152, 159, 581 N.Y.S.2d 283 (1st Dept. 1992).
Although the complaint alleges that Cugny and Tamone previously
owned real property—a residential condominium—in New York through
A.M.S.S. Realty Corp. (SAC ¶¶ 6, 11), there are no allegations linking that
property to plaintiffs’ causes of action. As plaintiffs’ claims do not arise
from the ownership of this property, this subsection does not establish a
basis for the Court’s jurisdiction over Cugny and Tamone. See id.; Mangia
Media Inc., 846 F. Supp. 2d at 323.
5.
N.Y. C.P.L.R. § 303—designation of attorney as agent of
service
Plaintiffs’ attempt to invoke N.Y. C.P.L.R. § 303 as a basis for personal
jurisdiction also falls short. Pursuant to that section, a person who
commences a lawsuit in New York state—and is otherwise not subject to
personal jurisdiction—designates his attorney as agent for service of
process, during the pendency of that litigation, “in any separate action in
which such person is a defendant and another party to the action is a
plaintiff if such separate action would have been permitted as a
counterclaim had the action been brought in the supreme court.” Aside
from the fact that this section does not itself confer personal jurisdiction,
but merely designates an attorney as an agent of process, and plaintiffs did
not serve the attorney in the 2008 Barneli suit on behalf of the moving
defendants (see Dkt. Nos. 20, 21, 35‐37), this statute only applies during the
28
pendency of the original litigation brought by Bameli. N.Y. C.P.L.R. § 303;
Paola Vista Clothing, Ltd. v. V.R.P. Calzaturificio S.P.A., 148 A.D.2d 593, 595,
539 N.Y.S.2d 59 (2d Dept. 1989). The Bameli suit ended in May 2012 (SAC
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