Opinion
No. 02 Civ. 3592 (RCC)(KNF).
October 21, 2004
MEMORANDUM AND ORDER
I. INTRODUCTION
The plaintiffs in this action, George Dale ("Dale"), Carroll Fisher ("Fisher"), Paula A. Flowers ("Flowers"), Scott B. Lakin ("Lakin"), and Mike Pickens ("Pickens") (collectively, "plaintiffs"), who are, respectively, the receivers of seven insurance companies ("insurance companies"), brought this action alleging, inter alia, violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq., ("RICO" or "RICO Act"), common law fraud, and other state law causes of action against defendants Banque SCS Alliance, S.A. ("Banque SCS"), and Jeanne-Marie Wery ("Wery") (collectively, "defendants"). The plaintiffs also allege that Banque SCS was negligent in hiring, supervising and retaining Wery. Each of the insurance companies is domiciled in the state of which its receiver is an official. According to the amended complaint, Banque SCS is a Swiss corporation headquartered in Switzerland, and Wery, a citizen of Belgium, is an officer, employee and agent of Banque SCS.
Dale, the Commissioner of Insurance for the State of Mississippi, is the receiver of Franklin Protective Life Insurance Company, Family Guarantee Life Insurance Company, and First National Life Insurance Company of America. Fisher, the Insurance Commissioner for the State of Oklahoma, is the receiver of Farmers and Ranchers Life Insurance Company. Flowers, the Commissioner of Commerce and Insurance for the State of Tennessee, is the receiver of Franklin American Life Insurance Company. Lakin, the Director of the Department of Insurance for the State of Missouri, is the receiver of International Financial Services Life Insurance Company. Pickens, the Insurance Commissioner for the State of Arkansas, is the receiver of Old Southwest Life Insurance Company.
Before the Court is the defendants' motion to dismiss the action, pursuant to Fed.R.Civ.P. 12(b). The plaintiffs oppose the motion and, in the alternative, they have made an application that they be permitted to engage in jurisdictional discovery. The defendants oppose the plaintiffs' request for jurisdictional discovery. Both applications are addressed below.
II. BACKGROUND
The plaintiffs allege that from 1990 until 1999, the defendants assisted Martin Frankel ("Frankel") in defrauding the insurance companies of over $200,000,000, thus rendering the insurance companies insolvent. According to the plaintiffs, Frankel devised and executed a scheme to acquire ownership of the insurance companies fraudulently. The plaintiffs contend that Frankel evaded detection by regulatory authorities and looted the assets of the insurance companies for his own benefit. The plaintiffs maintain that, with the assistance of the defendants, Frankel laundered the illegally obtained funds through a series of fraudulent wire transfers to and from, inter alia, Banque SCS's correspondent bank account in New York and other accounts it maintained outside New York. The plaintiffs allege that Wery, at Frankel's direction, purchased travelers checks using insurance company funds Frankel obtained illegally, and had the checks shipped to Banque SCS in Switzerland and then to Frankel, and others associated with him, at various New York addresses.
The plaintiffs allege further that, with Wery's assistance, Frankel maintained accounts at Merrill Lynch and Bear Stearns under the alias "David Rosse." According to the plaintiffs, when those financial institutions became suspicious of Frankel's transactions, Wery participated in two meetings in New York with representatives of those financial institutions. The plaintiffs allege that, at these meetings, Wery and the representatives of Merrill Lynch and Bear Stearns "discussed generally 'Rosse's' business activities" and "discussed 'Rosse's' business relationship with [Banque SCS]." During those discussions, Wery allegedly made various false statements on Frankel's behalf, including the representation that "Rosse's" transactions involved "Rosse's" funds only. The plaintiffs maintain that the defendants helped Frankel conceal his identity on funds transfer documents and, when regulatory authorities began to uncover Frankel's illegal activities, the defendants helped Frankel liquidate the stolen insurance company assets, so that they could be used if Frankel determined to flee the United States.
The plaintiffs served the summons and complaint on the defendants in Switzerland. They maintain that the court has personal jurisdiction over the defendants, pursuant to Fed.R.Civ.P. 4(k)(1) and New York Civil Practice Law and Rules ("CPLR") §§ 301-02. Alternatively, the plaintiffs allege that the court has jurisdiction over the defendants perforce of Fed.R.Civ.P. 4(k)(2).
In support of their claim that this court has personal jurisdiction over the defendants, the plaintiffs point to an agreement between Banque SCS and a non-party, Brown Brothers Harriman. That agreement governs a Banque SCS correspondent bank account that the plaintiffs contend was used to execute Frankel's scheme. In that correspondent bank account agreement, Banque SCS consented to have "all actions and proceedings based upon or relating to [the] agreement" litigated in New York courts. The plaintiffs also contend that Wery received letters and facsimile transmissions that were sent from Mount Kisco, New York, which contained instructions for executing wire transfers in connection with the fraudulent scheme. Moreover, according to the plaintiffs, Wery placed telephone calls to Mount Kisco, New York, to confirm those instructions.
In further support of their claim that the court has personal jurisdiction over the defendants, the plaintiffs have alleged that Banque SCS employs a New York agent to market its services in New York and has agreed to resolve any disputes under its contract with that agent by "commenc[ing] proceedings" in New York. The plaintiffs also note that Banque SCS maintains an interactive website through which it solicits and transacts business in New York.
For their part, the defendants contend that the amended complaint should be dismissed because it fails to set forth facts that support the plaintiffs' claims. In addition, the defendants maintain that the court did not acquire personal jurisdiction over them under Fed.R.Civ.P. 4(k)(1) or (2). Furthermore, the defendants allege that process was not served upon them in a manner that comports with the requirements of the RICO Act, as they were outside of the United States when served. The defendants contend that, under the circumstances, exercising personal jurisdiction over them would not be in keeping with the Constitution's Due Process Clause. Moreover, according to the defendants, this judicial district is not a convenient forum in which to litigate this action. They maintain that Switzerland, where Banque SCS is situated, would be a more convenient forum in which to resolve the claims made in this action.
In support of their contentions regarding the court's lack of personal jurisdiction over them, the defendants have submitted the declaration of Elizabeth Cirone, the agent whom the plaintiffs allege Banque SCS has engaged to solicit business for it in New York ("Cirone declaration"). Cirone maintains that she has introduced prospective clients to Banque SCS and that, pursuant to an agreement she has with Banque SCS, she has received a commission for those introductions that have resulted in Banque SCS acquiring a new client. However, Cirone contends that she does not, and is not authorized to, "undertake any marketing or solicitation efforts on [Banque SCS's] behalf in New York." Moreover, Cirone maintains that she is not an employee of Banque SCS.
III. DISCUSSION
Personal Jurisdiction
"The burden of proving jurisdiction is on the party asserting it." Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994). "In deciding a pretrial motion to dismiss for lack of personal jurisdiction a district court has considerable procedural leeway. It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion." Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). If the court relies solely on the pleadings and affidavits, the plaintiff need only make a prima facie showing of personal jurisdiction. See Robinson, 21 F.3d at 507. In determining whether the plaintiff has made a prima facie showing of personal jurisdiction, a court is permitted to construe jurisdictional allegations liberally and to take all uncontroverted factual allegations to be true. Id.
Rule 4 of the Federal Rules of Civil Procedure provides, in pertinent part:
* * *
(k) Territorial Limits of Effective Service.
(1) Service of a summons or filing a waiver of service is effective to establish jurisdiction over the person of a defendant
(A) who could be subjected to the jurisdiction of a court of general jurisdiction in the state in which the district court is located. . . .
* * *
(2) If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service is also effective, with respect to claims arising under federal law, to establish personal jurisdiction over the person of any defendant who is not subject to the jurisdiction of the courts of general jurisdiction of any state.
Fed.R.Civ.P. 4(k)(1)(A), 4(k)(2).
The plaintiffs allege that the court has personal jurisdiction over the defendants perforce of Fed.R.Civ.P. 4(k)(1)(A), because the defendants would be subjected to the jurisdiction of New York courts, pursuant to CPLR § 302(a)(1) and (a)(2). The plaintiffs also allege that Banque SCS is subject to the personal jurisdiction of this court, pursuant to Fed.R.Civ.P. 4(k)(1)(A) and CPLR § 301. Alternatively, the plaintiffs maintain that personal jurisdiction over the defendants is authorized by Fed.R.Civ.P. 4(k)(2). Each of the grounds upon which the plaintiffs allege that the court can exercise personal jurisdiction over the defendants is addressed below.
The amended complaint does not mention CPLR § 301 specifically, but refers to the "general jurisdiction" of the courts of New York, which is governed by that statute.
1. CPLR § 301
Under New York law, (CPLR § 301), "[a] court may exercise such jurisdiction over persons, property or status as might have been exercised heretofore," that is, under the case law in force prior to the enactment of CPLR § 301. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57-58 (2d Cir. 1985). That case law "confer[red] personal jurisdiction over a foreign corporation engaged in such a continuous and systematic course of doing business [in New York] as to warrant a finding of its presence in [that] jurisdiction." Semi Conductor Materials, Inc. v. Citibank Int'l PLC, 969 F. Supp. 243, 245 (S.D.N.Y. 1997) (quotation marks omitted) (citing McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 645). "[A] corporation is 'doing business' and is therefore 'present' in New York and subject to personal jurisdiction with respect to any cause of action, related or unrelated to [its] New York contacts, if it does business in New York 'not occasionally or casually, but with a fair measure of permanence and continuity.'" Hoffritz for Cutlery, Inc., 763 F.2d at 58 (quoting Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267).
Traditionally, courts have considered four factors when determining whether a foreign corporation is "doing business" in New York: "the existence of an office in New York; the solicitation of business in [New York]; the presence of bank accounts and other property in [New York]; and the presence of employees of the foreign defendant in [New York]." Id. Additionally, while merely soliciting business in New York will not subject a foreign corporation to the jurisdiction of New York courts, under the "solicitation-plus" doctrine, "once solicitation is found in any substantial degree very little more is necessary to a conclusion of 'doing business.'" Beacon Enterprises, Inc. v. Menzies, 715 F.2d 757, 763 (2d Cir. 1983) (quoting Aquascutum of London, Inc. v. S.S. American Champion, 426 F.2d 205, 211 [2d Cir. 1970]). However, in order "[t]o sustain personal jurisdiction [under the solicitation-plus doctrine], New York courts require substantial solicitation that is carried on with a considerable measure of continuity and from a permanent locale within the state." Id. (internal quotation marks omitted).
The plaintiffs allege that Banque SCS maintains an interactive website that is accessible in New York. However, the plaintiffs do not allege that Banque SCS has offices, employees, or property in New York, except for its correspondent bank accounts. According to the Cirone declaration, Cirone refers prospective clients to Banque SCS occasionally, but does not actively solicit business for it in New York. Even if the plaintiffs' allegation that Cirone solicits business for Banque SCS in New York is credited, the Court finds the totality of the contacts Banque SCS is alleged to have with New York is too limited to be considered systematic and continuous when evaluated in light of the four factors identified inHoffritz. Moreover, the plaintiffs do not make any factual allegations that would support a conclusion that Cirone's business solicitation activities on behalf of Banque SCS in New York, are substantial and continuous, or that any business solicitation effected through Banque SCS's website is substantial and continuous. Furthermore, the plaintiffs do not allege that either of these solicitation efforts is "carried on . . . from a permanent locale within [New York]." Beacon Enterprises, Inc., 715 F.2d at 763. Therefore, the plaintiffs' allegations regarding Banque SCS's solicitation of business in New York are not sufficient to employ the solicitation-plus doctrine as a vehicle for finding that the court may exercise personal jurisdiction over Banque SCS.
Accordingly, the plaintiffs have not made a prima facie showing that Banque SCS is doing business in New York to an extent that warrants a finding of its presence in that jurisdiction such that it could be concluded that the court has personal jurisdiction over it.
CPLR § 302(a)(1) provides, in pertinent part, that a New York court may exercise personal jurisdiction over a non-domiciliary "who in person or through an agent . . . transacts any business within the state." CPLR § 302(a)(1) "extends the jurisdiction of New York state courts to any nonresident who has 'purposely availed [itself] of the privilege of conducting activities within New York and thereby invoked the benefits and protections of its laws. . . .'" Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 787 (2d Cir. 1999) (quoting Parke-Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 18, 308 N.Y.S.2d 337, 341). "[A] single transaction would be sufficient to fulfill this requirement, so long as the relevant cause of action also arises from that transaction." Id. (citations and quotation marks omitted). The Second Circuit has held that the following factors should be considered when determining whether a foreign defendant has transacted business in New York, within the meaning of CPLR § 302(a)(1):
(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 franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state.Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 22 (2d Cir. 2004).
"Although all factors are relevant, no one factor is dispositive and other factors may be considered." Id. at 23.
According to the amended complaint, Banque SCS maintained, at relevant times, several correspondent bank accounts in New York. Some of the accounts were allegedly used in connection with Frankel's scheme to launder wrongfully obtained insurance company funds. Furthermore, the plaintiffs contend that the agreement through which one of the correspondent bank accounts was established contained a forum selection clause that required that "all actions and proceedings based upon or relating to [the] agreement" be litigated in New York. The plaintiffs also allege that Wery traveled to New York, on at least two occasions, in order to further Frankel's money laundering efforts. In particular, during these visits, Wery allegedly met with representatives of other banks with whom Frankel — using the alias "David Rosse" — maintained accounts. According to the plaintiffs, Wery provided false information to the other banks about "Rosse's" relationship to Banque SCS, and gave false assurances that the funds "Rosse" used were his own. The plaintiffs also maintain that Banque SCS received facsimile transmissions from New York containing Frankel's funds transfer instructions and placed telephone calls to New York to confirm those instructions.
None of these factual allegations satisfies the personal jurisdiction statutory requirement that the defendants engage in business transactions within New York. "Courts have repeatedly found that a correspondent bank relationship between a foreign bank and a New York financial institution does not provide sufficient grounds to exercise personal jurisdiction over a foreign bank." Semi Conductor Materials, 969 F. Supp. at 246. Telephone and facsimile transmissions to or from New York, unless used by the defendants to project themselves into New York, do not constitute the transaction of business within New York. See id. at 246-47 (quotation marks omitted). Furthermore, the forum selection clause in the correspondent bank account agreement cannot be construed reasonably as blanket consent by Banque SCS to be subject to personal jurisdiction in New York in any action brought against it by a person who is not a party to the correspondent bank account agreement. Moreover, the record before the Court does not provide any basis for the conclusion that the claims brought by the instant plaintiffs relate to the correspondent bank account agreement.
The meetings it is alleged Wery had with representatives of Merrill Lynch and Bear Stearns are also unavailing to the plaintiffs. The plaintiffs have alleged only that, during those meetings, Wery "discussed generally" Frankel's business activities and Frankel's relationship with Banque SCS. They also claim that Wery stated, falsely, that Frankel's transactions involved Frankel's funds only. The plaintiffs do not allege that Wery or Banque SCS negotiated or entered into a contractual relationship with Merrill Lynch or Bear Stearns during the meetings — or at any other time. Accordingly, none of the factors identified in Sunward Electronics inures to the plaintiffs, and it cannot be inferred from the plaintiffs' allegations that the defendants transacted business at Wery's meetings with representatives of Merrill Lynch and Bear Stearns.
In light of the foregoing, the Court finds that the plaintiffs have not made a prima facie showing that their claims arise out of the purposeful transaction of business by the defendants in New York.
CPLR § 302(a)(2) provides that a New York court may exercise jurisdiction over a non-domiciliary "who in person or through an agent . . . commits a tortious act within the state. . . .";see also Bank Brussels Lambert, 171 F.3d at 789-90.
The plaintiffs contend that Wery committed a tortious act during his meetings with representatives of Merrill Lynch and Bear Stearns, by making false statements to further Frankel's "fraudulent scheme." Fed.R.Civ.P. 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Therefore, in order to state a claim of fraud with the requisite particularity, "the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). Under New York law, "[t]he elements of a claim for fraud . . . are a material, false representation, an intent to defraud thereby, and reasonable reliance on the representation, causing damage to the plaintiff." May Dept. Stores Co. v. International Leasing Corp., Inc., 1 F.3d 138, 141 (2d Cir. 1993).
In order for the statements uttered by Wery to the representatives of Merrill Lynch and Bear Steams to form the bases for a claim of fraud, they must have caused damage to a party who relied upon them. The amended complaint does not allege that the plaintiffs in this action relied upon Wery's statements to Merrill Lynch and Bear Stearns. Moreover, even if it could be inferred from the amended complaint that Merrill Lynch or Bear Stearns relied upon Wery's "false statements," the amended complaint does not allege that either of these entities was damaged by its reliance on Wery's representations.
The plaintiffs argue that Wery's statements and the defendants' illegal receipt of funds in New York bank accounts furthered Frankel's broader scheme to defraud the insurance companies. However, CPLR § 302(a)(2) requires the commission of a tortious act, not merely the taking of a step in furtherance of the commission of a tortious act. Therefore, the allegations concerning Wery's statements to Merrill Lynch and Bear Stearns do not establish all the elements required to make out a claim of fraud under New York law.
Since the amended complaint does not allege that the defendants committed a tortious act within New York, the Court finds that the plaintiffs have not made a prima facie showing of personal jurisdiction, pursuant to CPLR § 302(a)(2).
Fed.R.Civ.P. 4(k)(2) permits the exercise of personal jurisdiction over a defendant only if that defendant "is not subject to the jurisdiction of the courts of general jurisdiction of any state." The plaintiffs allege, as an alternative to their allegations respecting jurisdiction under Fed.R.Civ.P. 4(k)(1)(A), that: (1) the defendants do not have contacts with any state sufficient to permit any state's court of general jurisdiction to exercise personal jurisdiction over them; and (2) in the aggregate, the defendants' contacts with the United States are sufficient to permit this court to exercise personal jurisdiction over the defendants. Even if the first of these allegations is accepted as true, the pleadings do not identify any contacts that the defendants might have with states other than New York. Accordingly, the defendants' alleged New York contacts are the only contacts that the Court may consider in evaluating the defendants' contacts with the United States as a whole. The Court concludes that the defendants' contacts with New York, which were insufficient to support a finding that the court could exercise personal jurisdiction over the defendants, are also insufficient to support a finding that the court has personal jurisdiction over the defendants based on their contacts with the United States as a whole. As a consequence, the Court finds that the plaintiffs have not made a prima facie showing that jurisdiction over the defendants exists pursuant to Fed.R.Civ.P. 4(k)(2). Application for Jurisdictional Discovery
The defendants also contend that the RICO statute prohibits service of process outside the United States. Although that statute does not authorize service of process to be effected abroad, it does not prohibit such service. See 18 U.S.C. § 1965. The RICO statute is silent on the issue of service of process outside the United States and, therefore, the RICO statute is not inconsistent with the provisions of Fed.R.Civ.P. 4(k)(2). See Central States, Southeast and Southwest Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 940-42 (7th Cir. 2000); National Asbestos Workers Medical Fund v. Philip Morris, 86 F. Supp. 2d 137, 142 (E.D.N.Y. 2000).
A district court enjoys broad discretion in handling pre-trial discovery. In re Fitch, Inc., 330 F.3d 104, 108 (2d Cir. 2003). Where a plaintiff fails to make a prima facie showing that a court has personal jurisdiction over a defendant, an application for jurisdictional discovery may properly be denied. See Jazini v. Nissan Motor Company, 148 F.3d 181, 186 (2d Cir. 1998). In this action, the plaintiffs have not made a prima facie showing that the court has personal jurisdiction over the defendants. Moreover, the plaintiffs have not stated what information, if any, supports their contention that jurisdictional discovery would likely yield evidence sufficient to support their allegations respecting personal jurisdiction. Under the circumstances, the Court is not persuaded that it would be reasonable to permit the plaintiffs to engage in jurisdictional discovery. Therefore, their application to do so is denied.
Forum Non Conveniens, Failure to State a Claim
Since the court lacks jurisdiction over the defendants, their remaining contentions, that the action should be dismissed forforum non conveniens and for failure to state a claim, need not be addressed.
IV. CONCLUSION
For the reasons set forth above, the defendants' motion to dismiss the amended complaint for lack of personal jurisdiction is granted, and the plaintiffs' application to engage in jurisdictional discovery is denied.
SO ORDERED.