Seeking justice in the Empire State: Court of Appeals broadens the reach of long arm jurisdiction and clarifies the statutory guidelines for application of CPLR section 302(a) (1).

• Author: Carlisle, Jay C.
• Position: New York Civil Procedure Law and Rules

1. INTRODUCTION

   This article will discuss developments in long-arm jurisdiction under CPLR section 302(a)(11) and analyze the recent New York State Court of Appeals's thoughtful and instructive decision in Lied ex rel. Lied v. Lebanese Canadian Bank, SAL. (2) Lied decided the question of whether a non-domiciliary's maintenance of a bank account in New York constituted a "transaction of business" out of which the plaintiffs claims arose under the state's long-arm statute. The Lied plaintiffs had alleged that the defendant funded a terrorist organization responsible for the injuries and deaths of certain plaintiffs and decedents they represented. (3) The Lied opinion did not decide if New York had jurisdiction over the defendant but analyzed a certified question (4) from the United States Court of Appeals for the Second Circuit regarding whether there was a statutory basis for personal jurisdiction over the defendant. (5)

   In Lied, the Empire State's highest court answered the Second Circuit's question in the affirmative, expansively defining the "transaction of business" clause under CPLR section 302(a)(1)(6) and extending the jurisdictional reach of the long-arm statute's "arising out of' provision. (7) The Lied opinion is a broad and pragmatic statutory interpretation of CPLR section 302(a)(1) by the Court of Appeals. It signals the court's willingness to apply the state's long-arm statute as its drafters intended, (8) clarifies prior jurisprudential entanglement of statutory and constitutional issues, (9) and is welcome news for the plaintiffs bar. (10)

   1. Jurisdiction in New York

      A New York State court does not have jurisdiction to render a valid, binding judgment unless it has "subject matter jurisdiction (competence to entertain a claim or claims), in personam jurisdiction (power over the person or property), and proper notice." (11) Consideration of subject matter jurisdiction and notice are not included in this article. If the defendant consents, is domiciled, incorporated, licensed to do business, or is doing business in New York, a state court may exercise personal jurisdiction over that defendant. (12) Jurisdiction over the property includes in rem and quasi-in rem jurisdiction. (13) These traditional grounds for in personam or power jurisdiction are referred to as general jurisdiction and were developed prior to the adoption of the CPLR. (14) They were incorporated into CPLR 301 by the New York legislature. (15)

      Specific jurisdiction is authorized by CPLR 302. (16) It is a "single contact" long-arm statute, which permits the state's courts to restrictively assert in personam jurisdiction over non-domiciliary individuals, corporations and other entities designated by the statute that are not subject to general jurisdiction. (17) Jurisdiction under CPLR 302 is restricted by the contacts enumerated in the statute and the claims they are based on must arise out of those contacts. (18) The long-arm statute does not extend as far as is constitutionally permissible (19) and its application cannot violate the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution. (20)

      In personam jurisdiction must be analyzed separately for each cause of action in the plaintiffs complaint and for each defendant, co-defendant, and third party defendant. (21) New York courts determine if in personam jurisdiction exists by using a three-step process. First, assuming the court has competence to hear a matter, the court determines whether the plaintiffs service of process upon the defendant was procedurally proper. (22) Second, the court determines whether there is a statutory basis under CPLR 301 or 302 that renders the service of process effective. (23) Third, the court determines whether the exercise of in personam jurisdiction comports with constitutional principles. (24) The New York long-arm statute does not extend to the constitutional limits established by International Shoe Co. v. Washington (25) and its progeny. Thus, sometimes a court's statutory analysis under CPLR 302 may resemble the due process analysis under the Fourteenth Amendment leading to an entanglement in New York decisional jurisprudence. (26) This entanglement appears particularly evident with respect to CPLR section 302(a)(1) (27) and can result in a faulty jurisdictional analysis. (28)

      Federal courts sitting in diversity actions hearing claims that do not involve nationwide service of process must, under Erie principals, first apply New York State substantive law to determine if there is a statutory basis for in personam jurisdiction under CPLR 302. (29) Only if statutory jurisdiction exists, must the court then decide if an assertion of jurisdiction is permitted under the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution. (30)

   2. The Licci Opinions

      The Licci case was originally filed in New York State Supreme Court and removed to the United States District Court of the Southern District of New York. (31) The district court dismissed plaintiffs claims, in part, on the grounds there was not a statutory basis for them under CPLR section 302(a)(1). (32) The court held that defendant Lebanese Canadian Bank ("LCB") did not "transact[] business" in New York State (33) and that the plaintiffs claims did not arise out of the act enumerated in the long-arm statute because there was not an "articulable nexus" or "substantial relationship" between the claims and the alleged "transaction of business" in New York. (34) The district court stated "[t]he injuries and death suffered by plaintiffs and their family members were caused by the rockets launched by Hizbollah, not by the banking services provided by LCB through its correspondent account or wire transfers with Amex Bank via New York." (35) Finally, the district court ignored the circuit court's "constitutional avoidance" doctrine and conducted a due process inquiry finding there was no jurisdiction over LCB. (36)

      Plaintiffs appealed to the Second Circuit which addressed solely the question of whether there was a statutory basis under CPLR section 302(a)(1) for in personam jurisdiction. (37) The circuit court, after a thoughtful and instructive statutory analysis, concluded that Court of Appeals law did not appear to have addressed the jurisdictional questions presented in Licci and that the decisions of other New York courts did not assist the circuit court in predicting with confidence how the Court of Appeals would decide them. (38) The circuit court concluded that important public policy choices, best left to New York's highest court, were involved and certified them to the Court of Appeals. (39)

      Part II of this article will summarize the Licci holdings of the district and circuit court. Part III will analyze the Court of Appeals decision in Licci. Part IV will explain the Court of Appeals's helpful clarification of the jurisprudential entanglement issue under CPLR section 302(a)(1) and Part V predicts how Licci will impact future statutory jurisdictional inquiries in New York State and federal courts.

2. SUMMARY OF THE LICCI FEDERAL OPINIONS

   1. Licci: The United States District Court for the Southern District of New York

      The district court's opinion was issued on March 31, 2010 in the form of a Memorandum Decision and Order by Judge George B. Daniels. (40) The district court granted defendant American Express Bank Ltd.'s ("Amex Bank") motion to dismiss plaintiffs complaint under Federal Rule of Civil Procedure 12(b)(6) and defendant LCB's motion to dismiss under 12(b)(6) and Federal Rule of Civil Procedure 12(b)(2). (41)

      1. In Personam Jurisdiction Over LCB

      Judge Daniels explained that since no evidentiary hearing or discovery had been held plaintiffs need only make a prima facie showing that in personam jurisdiction over LCB exists. (42) He noted, "The Court is to accept all averments of jurisdictional facts as true, and construe the pleadings and affidavits in plaintiffs' favor," and that he "must ... determine whether New York state law provides a basis to assert personal jurisdiction over LCB, and if so, must then determine whether the exercise of jurisdiction would comport with constitutional principles of due process." (43) Plaintiffs argued that LCB was subject to in personam jurisdiction under New York's long-arm statute, CPLR section 302(a)(1), which required a showing that LCB transacted business in New York and that the plaintiffs' claims arose from the business activity. (44) Judge Daniels stated, "The mere maintenance of correspondent bank account with a financial institution in New York is not, standing alone, a sufficient basis to subject a foreign defendant to personal jurisdiction under [section] 302(a)(1)." (45) He admitted that on rare occasions active use of a correspondent account may confer in personam jurisdiction over a non-domiciliary defendant but only if the use "constitute [d] the 'very root' of the claims against the foreign bank." (46) Furthermore Judge Daniels believed the use "of wire transfers [was] not a 'use' of a correspondent account which alone [was] sufficient to confer jurisdiction over a foreign bank." (47)

      Judge Daniels also believed that "[n]o articulable nexus or substantial relationship existed between LCB's general use of its correspondent account for wire transfers through New York and the specific terrorist activities by Hizbollah underlying plaintiffs' claims." (48) He focused on the injuries and deaths suffered by plaintiffs and their family members as being caused by Hezbollah's rockets and not by LCB's banking services provided via its correspondent account with Amex Bank in New York. (49) Judge Daniels reasoned, "LCB's maintenance or use of its correspondent bank account is too attenuated from Hizbollah's attacks in Israel to assert personal jurisdiction based solely on wire transfers through New York." (50) Judge Daniels, having found no statutory basis for in personam jurisdiction under CPLR section...