Andy Frischknecht to Join NYU/Columbia Conference Panel on “International Arbitration from a US Law Perspective”, Saturday, November 12th

There’s No Place Like Home.

New York Court of Appeals: Foreign corporations do not submit to general personal jurisdiction in New York merely by registering to do business within the state.

Aybar v. Aybar, 37 N.Y.3d 274 (N.Y. Ct. App. 2021).

Courts in the United States distinguish between two basic forms of personal jurisdiction. General jurisdiction “permits a court to exercise jurisdiction over a defendant in connection with a suit arising from events occurring anywhere in the world,” while specific jurisdiction exists only “where the suit arises out of or relates to the defendant’s contacts with the forum state.” Over the past decade, the United States Supreme Court has substantially narrowed the scope of general jurisdiction over corporations. Where the plaintiff’s claims are unrelated to the corporate defendant’s in-state activities, a court may exercise jurisdiction over the corporation only if it is “essentially at home” there. Absent “exceptional” circumstances, this means that a corporation typically will be subject to general jurisdiction only in the state(s) where it is incorporated or maintains its principal place of business.

Nonetheless, courts in New York and elsewhere remain free to exercise personal jurisdiction over any foreign corporation that consents to in-state jurisdiction. But the Court of Appeals recently rejected an attempt by plaintiffs to expand general jurisdiction over foreign corporations on that basis. It held that a foreign corporation’s compliance with the statutory requirements of “registering to do business here and designating a local agent for service of process . . . does not constitute consent to general jurisdiction in New York courts.”

The plaintiffs brought suit against a car manufacturer (Ford) and tire manufacturer (Goodyear) alleging negligent manufacture and design of an automobile and tire involved in an accident. The accident occurred in Virginia, and neither the car nor the tire involved were originally sold in New York. Moreover, neither Ford nor Goodyear was incorporated or maintained its principal place of business in New York. However, both companies “were registered with the New York Secretary of State as foreign corporations authorized to do business in this state and had appointed in-state agents for service of process in accordance with the Business Corporation Law.” By taking these steps, the plaintiffs argued, Ford and Goodyear “knowingly consent[ed] to general jurisdiction in this state’s courts.”

But the Court of Appeals disagreed. It reasoned that the Business Corporation Law does not condition a foreign corporation’s “right to do business on consent to the general jurisdiction of New York courts or otherwise afford general jurisdiction to New York courts over foreign corporations that comply with [its] conditions.” The Court also rejected the plaintiffs’ suggestion that the Court’s more than century-old decision in Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432 (1916), stood for the proposition that “registering to do business in New York and appointing an agent for service of process constitutes consent to general jurisdiction.” Instead, the Court emphasized the earlier decision’s “narrow” focus on “the effect of service of process” as well as its “historical context,” explaining that the United States Supreme Court’s “jurisprudence defining the contours of the personal jurisdiction analysis” had since “evolved significantly.”

Two judges dissented. They stressed the “unquestioned legislative objective” behind the Business Corporation Law “to grant New York courts jurisdiction over foreign corporations.” The dissenting judges dismissed the majority’s “traipse through United States Supreme Court cases” as irrelevant because those cases had not “altered the ability to obtain jurisdiction by consent.”

Read the court’s full decision here.

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Court Revisits an “Eriely” Familiar Issue.

Second Circuit: Federal law determines admissibility of expert opinions in diversity cases.

Sarkees v. E.I. DuPont de Nemours & Co., 15 F.4th 584 (2d Cir. 2021).

In addition to deciding cases arising under federal law, U.S. federal courts also have “diversity jurisdiction” to adjudicate disputes arising under state law between citizens of different U.S. states, or between U.S. and foreign citizens.  In diversity cases, state law governs all substantive issues, while procedural issues are governed by federal law.  This longstanding rule is known as the “Erie doctrine.”  However, determining whether an issue is substantive or procedural is not always straightforward.  For evidentiary issues in particular, the Federal Rules of Evidence usually control.  But “some state evidence rules might be so closely related to state substantive provisions that the state evidence rule should be applied.”

This appeal arose from a district court’s exclusion of expert evidence in a personal injury case.  At issue was the opinion of the plaintiff’s expert, a physician, that the plaintiff’s repeated chemical exposure over a relatively brief period in the 1970s was a “substantial contributing factor” in his development of cancer decades later.  The district court excluded the expert’s evidence as “insufficient under [New York] state tort law.”  As a result, and because the plaintiff proffered no other evidence to show causation, the court granted summary judgment in favor of the defendant chemical manufacturers.

But the Second Circuit reversed.  It held that federal law controls “whether an expert’s opinion is excludable” in a diversity action (just as it does in cases arising under federal law).  Specifically, Federal Rule of Evidence 702 and the United States Supreme Court’s landmark decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), determine the admissibility of expert evidence in federal court.  Rule 702 directs courts to consider the following indicia of reliability when determining the admissibility of expert evidence:

(1) whether the testimony is grounded in sufficient facts or data; (2) whether the testimony is the product of reliable principles and methods; and (3) whether the expert has applied the principles and methods reliably to the facts of the case.

In addition to these indicia, courts also consider the following factors under Daubert:

(1) whether the methodology or theory has been or can be tested; (2) whether the methodology or theory has been subjected to peer review and publication; (3) the methodology’s error rate; and (4) whether the methodology or technique has gained general acceptance in the relevant scientific community.

Applying “the standards of Rule 702 and Daubert,” the Second Circuit determined that the expert’s evidence was admissible.  It found that the expert’s opinions were based on “well-respected studies” and reliable methodology.  In particular, the court rejected defendants’ suggestion that the expert’s methods were not reliable because she did not conduct a “quantitative risk assessment” of the degree of exposure necessary to cause cancer.  Although “precise information concerning the exposure necessary to cause specific harm” is “beneficial,” the court explained, such evidence “is not always available, or necessary, to demonstrate that a substance is toxic to humans given substantial exposure.”

The appellate court’s decision to admit the expert’s evidence effectively revived the plaintiff’s case.  As the court explained: “With [the expert’s] evidence available for trial, the [defendant]’s motion for summary judgment must be denied.”  But, “the weight and persuasive force” of the expert’s evidence remained for the jury to determine following an opportunity for “cross-examination and challenge by opposing evidence.”

Read the court’s full decision here.

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Caveat Debtor.

New York Court of Appeals: Judgment creditors are not liable in tort for procedural violations when they seek to enforce an otherwise valid money judgment.

Plymouth Venture Partners, II, L.P. v. GTR Source, LLC, 2021 WL 5926893 (N.Y. Dec. 16, 2021).

Article 52 of the New York Civil Practice Law and Rules (CPLR) allows judgment creditors to seek the Sheriff or Marshal’s assistance in seizing assets to satisfy a money judgment.  But judgment creditors must comply with the requirements of the CPLR and New York law.  For example, where assets of the debtor are held by a bank or other third-party “garnishee,” the Sheriff or Marshal may levy upon the property only if the garnishee is subject to personal jurisdiction in New York.  Otherwise, the judgment creditor must register the New York judgment in the state where the garnishee is located and, if necessary, obtain a court order there authorizing the seizure.

The Court of Appeals recently clarified what remedies are available to the debtor where a creditor ignores these requirements and seizes assets from a garnishee who is not subject to jurisdiction in New York.  Following a Michigan corporation’s default under two “merchant cash advance agreements,” its lenders obtained judgments against the debtor in New York.  Thereafter, a New York Sherriff and Marshal, on behalf of the lenders, successfully levied upon the debtor’s assets in a Michigan bank.  The bank had no branches or other presence in New York and was not subject to jurisdiction there.  But it nonetheless complied with the levy and turned over hundreds of thousands of dollars from the debtor’s Michigan bank accounts to the Sherriff and Marshal.

The debtor (now in receivership) filed separate tort actions against the lenders in federal district court seeking “to recover the amount taken from the [Michigan bank] accounts that was used to satisfy the relevant judgments,” along with unspecified consequential damages.  In both cases, the district court dismissed the tort claims, reasoning that the debtor had suffered no damages because “the funds recovered by the Marshal were used to extinguish the debtor’s valid debt owed under a valid court judgment.”  The cases were later consolidated on appeal, and the Second Circuit certified two questions to the Court of Appeals: (1) whether “a judgment debtor suffers cognizable damages in tort” where its property is seized to satisfy a valid money judgment but the levy fails to “comply with the [CPLR’s] procedural requirements”; and (2) if so, whether the debtor must first seek relief under the CPLR before it may “bring a tort claim against either the judgment creditor or the marshal.”

In a sweeping 4-3 decision, the Court of Appeals ruled that a motion for relief under article 52 of the CPLR is the debtor’s exclusive remedy against a creditor’s procedurally improper efforts to collect on an otherwise valid judgment.  On that basis, the four-judge majority found it unnecessary to address either certified question as formulated.  As they explained, article 52 specifically empowers New York courts “at any time [to] make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure.”  By codifying this remedy in article 52, the “legislature ‘provided the avenues for relief it deemed warranted.’”  The majority rejected as “not workable” any attempt to “recast” “allegations of non-compliance with article 52 in the course of enforcing valid judgments . . . into common law tort claims.”

Three judges dissented.  Two of the dissenting judges would have held that a judgment debtor lacks a viable tort claim “when the damages sought are limited solely to the value of the seized property.”  They would have found it unnecessary to reach the second certified question, but nonetheless criticized as without “legal basis” the majority’s conclusion “that the failure to seek relief under CPLR article 52 precludes a tort action.”  Writing separately, a third judge similarly emphasized that nothing about article 52’s “statutory processes for obtaining, enforcing, and challenging [money] judgments . . . supplants or limits” a debtor’s ability to assert “a common law tort claim against an allegedly improper judgment execution.”  But that judge additionally would have deemed it possible that “an accelerated and procedurally improper [judgment enforcement] process could proximately cause consequential damages.”

Read the court’s full decision here.

 

Gone with the wind: Court dismisses suit against wind-energy developer based on forum-selection clause

NYS Supreme Court, Commercial Division: Exclusive forum-selection clause in favor of Delaware courts warranted dismissal of noteholders’ New York lawsuit.

Stein v. United Wind, Inc., 139 N.Y.S.3d 520 (N.Y. Sup. Ct. 2021).

New York’s public policy favors forum-selection clauses.  As a result, New York courts regularly enforce exclusive forum-selection clauses requiring parties to resolve their contractual disputes in a particular forum.  Absent a “strong showing” that a clause conferring exclusive jurisdiction on another forum’s courts should be set aside, a New York court will enforce the clause and dismiss the plaintiff’s New York lawsuit.

Plaintiffs invested in United Wind, a wind-energy developer, by signing a subscription agreement and purchasing promissory notes pursuant to the subscription agreement’s terms.  The notes contained forum selection clauses conferring exclusive jurisdiction on the state and federal courts in Delaware “over any dispute arising in connection with this Note.”  Later, when they were not repaid upon maturity, plaintiffs sued to enforce the notes in New York state court.  Defendants moved to dismiss based on the forum-selection clauses.  Plaintiffs countered that they never signed the individual notes; that they were fraudulently induced into their investment; and that the parties had no substantive connection to Delaware.

The court sided with defendants.  To be bound by the forum-selection clauses, the court ruled, it was not necessary for plaintiffs to have signed the individual notes.  Instead, plaintiffs’ signature on the underlying subscription agreement was sufficient.  Moreover, plaintiffs could not have it both ways: they could not “seek to enforce the notes against the defendants and, at the same time, argue that [they] did not agree to [their] terms.”

Plaintiffs fared no better with their remaining objections alleging fraudulent inducement and an insufficient connection with Delaware.  The court found that neither challenge amounted to a “strong showing” sufficient to set the clauses aside.  Plaintiffs could not avoid the forum-selection clause on fraudulent inducement grounds because they did not claim that the forum selection clause itself was procured by fraud.  And United Wind’s status as a Delaware corporation constituted a sufficient connection with that state.

Read the court’s full decision here.

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A deal’s a deal (even without an enforceable contract):  Court upholds financial advisory firm’s claim for services rendered in connection with corporate acquisition

First Department: Although parties’ “agreement to agree” was unenforceable, plaintiff had a viable quantum meruit claim for compensation.

Sonenshine Partners, LLC v. Duravant LLC, 191 A.D.3d 567 (N.Y. App. Div. 2021).

Under New York law, a contractual “agreement to agree” that leaves material terms open for future negotiation is typically unenforceable.  An exception exists where an agreement to agree contains or refers to some objective standard that allows the court to determine the missing contract terms.  And even without an enforceable contract, New York law does not leave service providers empty-handed.  Instead, they may seek compensation for services rendered on a quantum meruit theory (a form of unjust enrichment claim).

Plaintiff entered into a nondisclosure agreement (NDA) with defendant in connection with defendant’s acquisition of another company.  The NDA provided that defendant would use “commercially reasonable best efforts” to ensure that plaintiff had “the opportunity to be engaged” as defendant’s financial advisor for the deal.  Plaintiff proceeded to advise defendant on the deal.  The work it performed included providing non-public financial information, market research, valuation information and advice, advice regarding competitive bidding and process information, competitor intelligence, and analyses of potential transactions regarding the potential deal.  Despite providing these services, plaintiff never received any payment from defendant.  Plaintiff sued for breach of contract and quantum meruit based on defendant’s failure “to compensate it for financial advisory services.”

The First Department dismissed the breach of contract claim because the NDA “failed to delineate the scope of [plaintiff]’s role, the types of investment banking services it would provide to [defendant], or the fees associated with any transaction.”  Defendant’s agreement to use “commercially reasonable best efforts” to facilitate plaintiff’s engagement as its financial advisor did not make the NDA any more definitive.  As the court explained, the reference to “commercially reasonable best efforts” did not provide “an industry standard that could clarify the missing terms and render the agreement enforceable.”

But the dismissal of its breach of contract claim did not leave plaintiff without a remedy, because it still had a viable claim for quantum meruit.  The court rejected defendant’s attempt to rely on a provision in New York’s statute of frauds requiring that agreements “implied in law or in fact” for “services rendered” in “negotiating . . . a business opportunity” must be in writing in order to be enforceable.  As the court explained, plaintiff claimed that it “was not simply an intermediary, providing services in the negotiation or consummation of a business opportunity.”  Rather, plaintiff alleged that its role included advising the defendant on whether to pursue the transaction at all.  In any event, the court deemed the NDA, along with certain related emails, sufficient to satisfy the statute of frauds’ “less exacting” writing requirement for quantum meruit claims (compared with claims for breach of contract).  For quantum meruit claims, New York law requires only that the fact of plaintiff’s employment (but not all material terms) must be in writing.

Read the court’s full decision here.

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Turning off the remote:  Despite COVID-19 concerns, court declines to order remote witness testimony over opposing party’s objection

Southern District of New York:  Witnesses’ discomfort with in-person testimony during the pandemic was not by itself “good cause” to justify their testimony by video link.

Chandra Cates v. Trustees of Columbia University in the City of New York, 16-cv-06524, ECF 433 (S.D.N.Y. Apr. 1, 2021).

The COVID-19 pandemic presents unique challenges for litigants approaching trial.  In particular, witnesses may have health and safety concerns that make them reluctant to travel to the courthouse to take the stand.  Recently, a federal court in the Southern District of New York ruled that a witness’s reluctance to appear in court, without more, could not override a party’s right to examine the witness in person.

The dispute arose when, in the lead-up to trial, defendant told plaintiffs that some of its witnesses would prefer to testify remotely rather than in-person.  Plaintiffs objected, arguing that in-person testimony was essential because they bore the burden of making “their case in chief through adverse witnesses” whose live testimony would be key to the court’s assessment of their credibility.  On that basis, plaintiffs sought an order requiring defendant “submit in camera the current and anticipated vaccination status of each witness seeking to avoid in-person testimony and the particular reasons that he or she would ‘prefer’ not to attend or would be ‘uncomfortable’ testifying in person.”  Defendant countered that its witnesses should be exempt from in-person testimony if they did not wish to appear because “the pandemic itself constitutes good cause for testimony by live videoconference” (regardless of vaccination status).

The court not only sided with plaintiffs, it went further than they requested.  It found that “[t]he COVID-19 pandemic itself does not alone constitute ‘good cause’ or ‘compelling circumstances’ to allow witnesses to testify remotely rather than personally in court.”  Despite the pandemic, the court directed that all witnesses “designated to testify . . . must testify in-person.”  But it allowed that a witness might still be permitted to testify remotely by agreement of the parties, or based on an individualized finding of “compelling circumstances.”

Read the court’s full decision here.

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Pay to play: Remote hearing costs not compensable under the Federal Rules of Civil Procedure

Southern District of New York:  Prevailing party not entitled to recover remote hosting costs for bench trial conducted over Zoom.

Victor J. Chain, Jr. v. North East Freightways, Inc., 2021 WL 1611953 (S.D.N.Y. Apr. 26, 2021).

A prevailing party in U.S. litigation typically cannot recover its attorney’s fees from the losing party.  The Federal Rules of Civil Procedure do permit recovery of costs “other than attorney’s fees,” but not all such costs are compensable.  A court in the Southern District of New York recently ruled that the cost of hosting a remote trial is not recoverable under the Federal Rules.

Due to restrictions arising from the COVID-19 pandemic, the parties conducted their three-day bench trial virtually over Zoom.  To facilitate the trial, they retained a third-party remote hearing coordinator to manage the Zoom platform and provide technical support as needed.  The parties agreed to split these remote hearing costs totaling around $10,000.  When defendants emerged victorious, they sought to recover their half of the costs from plaintiffs.

The court denied the request.  Although the costs of computerized audio-visual aids and digital demonstratives may be awarded to the prevailing party because they “assist the fact-finder in understanding the evidence,” the remote hearing coordinator did not serve the same function.  Instead, it merely “ensure[d] that the conduit through which information was relayed to the factfinder—Zoom—functioned as intended.”  The court analogized these services to “on-site trial support,” which is not compensable under the Federal Rules.

Read the court’s full decision here.