One of the fundamental issues that must be analyzed before commencing a lawsuit is whether you can obtain personal jurisdiction over the individual or entity you intend to sue.
When all of the parties reside or do business in the same state, or better yet the same county, personal jurisdiction becomes an afterthought. However, when the defendants reside and/or do business outside of New York, the question of whether you can obtain personal jurisdiction becomes critical. A recent decision in the Commercial Division, Suffolk County analyzed the key factors in determining whether personal jurisdiction exists and presents a cautionary tale for plaintiffs to consider when deciding on litigation against out-of-state defendants.
In Larsen v. Virtual Tech., Inc., 2014 NY Slip.Op. 50017(U) (Emerson, J.), the plaintiff, a New York resident, commenced a lawsuit against Virtual Technologies, Inc. (“Virtual”), a Delaware corporation whose principal place of business was in California. Plaintiff sought to recover $50,000 she loaned to Virtual based upon a default by Virtual under a promissory note. There was no dispute that the promissory note indicated that it was governed by the laws of the State of California and that it was executed in California. Virtual moved to dismiss the complaint on the basis that the court did not have personal jurisdiction over it under New York’s long-arm statute (CPLR 302(a)).
As noted by Justice Emerson in her decision in Larsen, CPLR 302(a)(1) allows New York courts to obtain personal jurisdiction over a non-domiciliary (out-of-state party) who transacts any business within the state if the plaintiff’s claim arises from the transaction of such business (citing Opticare Corp. v. Castillo, 25 A.D.3d 238, 243 (2d Dep’t 2005)). It is necessary to establish that the defendant’s activities within New York are purposeful and that there is a substantial relationship between the transaction of business and the claim asserted by plaintiff. Id.
Courts look at a variety of factors to determine whether an out-of-state defendant has actually “transacted” business in New York including, but not limited to: (i) whether the defendant has an on-going contractual relationship with a New York plaintiff; (ii) whether the contract at issue was negotiated or executed in New York and whether, after executing the contract, the defendant visited New York for the purpose of meeting the parties to the contract regarding the relationship; (iii) the choice-of-law clause in the contract; (iv) whether the contract required the defendant to send notices and payments into the forum state or subjected them to supervision by a corporation in the forum state. Patel v. Patel, 497 F.Supp 2d 419, 428 (E.D.N.Y. 2007).
In the Larsen case, even though plaintiff had an ongoing relationship with Virtual (and the subsequent entity Virtual formed), the Court noted that the promissory note at issue was only negotiated by telephone and mail and the defendants never actually came to New York either during the negotiation of the promissory note or after the note was executed to meet with the plaintiff. Also, the defendant never sent any payments under the note to New York and correspondence with the plaintiff was limited to a few letters and e-mails. Based on these facts and circumstances, coupled with the fact that the note was governed by the laws of the State of California, Justice Emerson held that the defendants’ contacts with New York were insufficient to establish that the defendants “intended to project themselves into ongoing New York commerce or that they purposefully availed themselves of the New York forum.”
Plaintiff also attempted to argue that the defendant transacted business in New York because it sold products in New York through its distributor and by selling products directly to national chain restaurants such as Dave and Busters and Chuck E. Cheese. However, the Court noted that there needed to be a substantial nexus between the business transacted and the cause of action sued upon. Because plaintiff’s claim did not arise from the defendants’ sale of products in New York, the Court found that there was no nexus between the business transacted in New York and the plaintiff’s claim. As a result, the defendants’ motion was granted and the case was dismissed due to lack of jurisdiction.
The Larsen case provides an important lesson for potential litigants who are dealing with potential out-of-state defendants. It is critical under such circumstances to review all of the party’s relevant New York contacts and the factors noted above before commencing litigation to ensure that jurisdiction over that party can be obtained.