Chaffetz Lindsey Sponsors Council for Economic Education Visionary Awards

Where Advocacy Meets Business

Chaffetz Lindsey Sponsors Council for Economic Education Visionary Awards

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October 2019 – Chaffetz Lindsey is a proud sponsor of the Council for Economic Education (CEE) 2019 Visionary Awards. The dinner reception, CEE’s signature fundraiser, recognizes leaders and educators for their meaningful contributions to increasing financial and economic education for K-12 students. This year’s program featured four honorees, plus three high school teachers who effectively deliver economics content, in and out of their classrooms, to make a positive difference in their students’ lives. Peter Chaffetz, who serves on CEE’s Board of Directors, attended the event with Sandy Litvack, Erin Valentine and Rainbow Willard.

The Council for Economic Education’s mission is to equip K-12 students with the tools and knowledge of economics and personal finance so that they can make better decisions for themselves, their families, and their communities. CEE carries out its mission by providing resources and training to K-12 educators and has done so for over 70 years. Nearly 2/3 of the teachers we reach in person are in low- and moderate-income schools.

 

Pictured (right to left): Peter Chaffetz, Rainbow Willard, Sandy Litvack, Erin Valentine, Alex Lipkind

Rainbow Willard Featured in CiArb’s The Resolver Magazine

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August 2019 – Rainbow Willard was recently featured the July edition of CiArb’s The Resolver. During a “60 Second Interview”, Rainbow answers a series of questions about specializing in ADR, the challenges she faces as a female arbitration practitioner, and her career path in the ADR profession.

The Chartered Institute of Arbitrators (CiArb) is an international hub for providing education and training in alternative dispute resolution to over 16,000 arbitrators, mediators, and adjudicators based across 133 countries. Rainbow is a member of the CiArb Young Members Group Global Steering Committee, which is a group of 14 dispute resolution practitioners below the age of 40 who volunteer their time to plan, organize, and promote activities targeted at young practitioners across the globe

Click here to read Rainbow’s interview with The Resolver.

Yasmine Lahlou and Rainbow Willard Published in GAR’s “Guide to Mining Arbitrations”

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July 2019 – Yasmine Lahlou and Rainbow Willard recently published an article on “The Rise of Environmental Counterclaims in Mining Arbitration” in Global Arbitration Review’s (GAR) The Guide to Mining Arbitrations – First Edition. Their contribution explores the growing trend of state-asserted counterclaims in the context of disputes under investment treaties, and in particular the potential for environmental counterclaims in mining arbitrations.

GAR is the leading resource on international arbitration news and community intelligence. The Guide to Mining Arbitrations is the newest topic to be added to the GAR Guides Series, and it introduces key issues in mining arbitration, substantive principles, and regional perspectives on mining arbitration.

Click here to read Yasmine and Rainbow’s chapter.

Accreditation: An extract from the first edition of GAR’s The Guide to Mining Arbitrations, first published in July 2019. The whole publication is available at https://globalarbitrationreview.com/edition/1001343/the-guide-to-mining-arbitrations-first-edition

Chaffetz Lindsey Out in Force at the IBA Annual Litigation Forum

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May 2019 – Chaffetz Lindsey is proud to be a member of the Organizing Committee, and a sponsor of the conference dinner, for this year’s IBA Annual Litigation Forum in Berlin from May 8th – 10th.  Peter Chaffetz, Andreas Frischknecht, and Rainbow Willard will be in attendance.

Andy is co-chair of the Young Litigators Forum, which is putting on a seminar on Wednesday afternoon focusing on witness examination techniques.  Andy will also co-chair a panel discussion on Cryptocurrencies, which will explore both foundational concepts and cutting-edge issues in cryptocurrency regulation and litigation on Friday morning.

Peter is an officer on the IBA Litigation Committee.

The IBA Annual Litigation Forum addresses legal, practical, and procedural issues involved in conducting litigation. This year’s conference will focus on “Disruption in Litigation – New Types of Disputes in a New World Order.”

NY Commercial Litigation Report, May 2019
(Vol. 8)

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Who says you can’t fight City Hall? …

Southern District of New York: AirBnB and HomeAway win preliminary injunction against New York City’s crackdown on short-term rental operators.

Airbnb, Inc. v. City of New York/ Homeaway.com, Inc. v. City of New York, No. 18-CV-7712 (PAE)/ 18-CV-7742 (PAE), 2019 WL 91990 (S.D.N.Y. Jan. 3, 2019).

In January, a federal judge in the Southern District of New York blocked New York City’s recent legislative attempt to crack down on short-term rental companies like AirBnB. The court found that a City ordinance requiring such companies to produce large amounts of user data to the City was likely unconstitutional. The ruling illustrates the factors courts consider when deciding whether to grant a preliminary injunction (i.e., a court order that restrains a party from a course of conduct and preserves the status quo until the court can decide the case).

A preliminary injunction can be a powerful tool at the outset of a case but is subject to strict requirements. First, the applicant must persuade the court that it faces a “substantial chance” of “irreparable harm” absent injunctive relief. Second, the applicant must show a likelihood (though not a certainty) of success on the merits. Third, the court must balance the harm each party will suffer if it grants the injunction to determine whether “the balance of hardships” tips in the favor of the party seeking the injunction. Fourth, and finally, courts must ensure that the preliminary injunction “serves the public interest.”

Plaintiffs Airbnb and HomeAway challenged the enforcement of a New York City ordinance requiring short-term rental companies to report information about rental units and the hosts who list them to the Mayor’s Office of Special Enforcement. Plaintiffs argued that enforcement of the ordinance would violate their constitutional right under the Fourth Amendment of the U.S. Constitution to freedom from unreasonable search or seizure. The court agreed, finding that plaintiffs had satisfied the preliminary injunction standard. The court first found that plaintiffs were likely to succeed on the merits. The court was concerned that the ordinance would “permit regulators to troll these records for potential violations of law.” But the Fourth Amendment does not permit “such a wholesale regulatory appropriation of a company’s user database.”

The other elements followed. The court found that the threatened constitutional violation (which would recur monthly) would cause plaintiffs irreparable harm. On the balance of hardships, the court concluded that the threatened irreparable harm to plaintiffs outweighed any harm to the city resulting from delayed enforcement of the ordinance if the court ultimately deemed it constitutional. Finally, although the public has an interest in protection from the harms of short-term rentals, the court held that the city could police such rentals through other measures. The city has appealed the decision to the Second Circuit Court of Appeals.”

Read the court’s full decision here.

“A cruel” setback for freedom of contract? …

New York Court of Appeals: New York law bars contracting parties from agreeing in advance to defer the accrual of future contract claims.

Deutsche Bank National Trust Company v. Flagstar Capital Markets, 32 N.Y.3d 139 (Oct. 16, 2018).

New York’s public policies favoring freedom of contract and the enforcement of statutory limitations periods clashed in this recent decision by New York’s highest court, the Court of Appeals. At issue was whether an “accrual clause” in an agreement for the sale of residential mortgage-backed securities could extend the time for the plaintiff to bring suit. In a 7-2 decision, the Court of Appeals gave greater weight to the public policy favoring clear limitations periods and restricted contracting parties’ ability to defer the accrual of claims under New York law.

Deutsche Bank (the purchaser of the securities) sued for breach of the seller’s representations and warranties seven years after the mortgage loans were originated. The parties’ agreement provided that “[a]ny cause of action . . . arising out of the breach of any representations and warranties . . . shall accrue . . . upon (i) the discovery of such breach by the Purchaser, (ii) failure by the Seller to cure such breach . . . and (iii) demand upon the Seller by the Purchaser for compliance with this Agreement.” Deutsche Bank argued that New York’s six-year statute of limitations did not bar its breach of warranty claim because this accrual clause created a substantive condition precedent to suit, such that “the statute of limitations [wa]s not triggered until” the conditions specified in the accrual clause were satisfied. Alternatively, Deutsche Bank asserted that the clause manifested the parties’ clear intent to extend the statute of limitations.

The Court of Appeals rejected both arguments and affirmed the lower courts’ dismissal of Deutsche Bank’s claims. First, the Court held that the accrual clause did not create a substantive condition precedent to the accrual of the breach of warranty claim. Under New York General Obligations Law § 17-103, an agreement to extend the statute of limitations must be made after the cause of action accrues and may extend the limitations period, at most, for the statutory “time period that would apply if the cause of action had accrued on the date of the agreement” (e.g., six years for a breach of contract claim). The Court explained that under Deutsche Bank’s interpretation, the accrual clause would constitute a prohibited agreement to “extend the limitations period . . . made before a breach of contract cause of action had accrued” and for an indefinite period, since “plaintiff’s discovery of the breach or defendant’s notice of the breach might occur decades into the future, for the life of the mortgage loans.”

The Court then analyzed the conflicting public policies favoring freedom of contract on the one hand, and the enforcement of statutes of limitations on the other. Deutsche Bank argued that the public policy favoring freedom to contract permitted the parties to agree to extend the statute of limitations even before a claim accrues. But the Court of Appeals disagreed, holding that “contracting parties may . . . agree to a shorter limitations period,” but “public policy restricts their ability to make an agreement extending the statutory period before a claim accrues.”

Two judges strongly dissented. Judge Rivera argued that “enforcement of the accrual provision is wholly aligned with the public policies animating both the freedom to contract and our statute of limitations.” Judge Wilson agreed and warned that the majority had set a bad precedent that may compel parties to “choose the law of some other state because New York considers these agreements against a public policy supposedly undergirding limitations periods.”

Read the Court’s full decision here.

Appellate court rules in Madoff feeder fund fight …

Second Circuit: Presumption against extraterritorial application of federal statutes did not preclude Madoff trustee’s claw-back claims against foreign feeder fund investors.

In re Picard, 917 F.3d 85 (2d. Cir. Feb. 25, 2019).

Atlantic OceanU.S. federal statutes generally apply only to activity within the United States unless Congress clearly expresses its intent for a particular statute to apply extraterritorially. The harder question the Court of Appeals for the Second Circuit decided in this high-profile case arising from the collapse of the Madoff Ponzi scheme is what to do when a statute does not expressly provide for extraterritorial application, but its application to a particular set of facts will have an extraterritorial impact.

In that circumstance, courts examine where the activity on which the statute focuses took place. Applying this test, a three-judge Second Circuit panel held that neither the presumption against extraterritoriality nor principles of international comity prohibited the Madoff bankruptcy trustee from recovering assets from foreign entities—even where those entities were more than one step removed from the Madoff bankruptcy estate in the United States.

Many of the investors in Madoff’s fraudulent investment firm, Madoff Securities, were so-called “feeder funds.” As the court explained, “[a] feeder fund is an entity that pools money from numerous investors and then places it into a ‘master fund’ on their behalf.” The “master fund” in this case was Madoff’s Ponzi scheme. When a feeder fund investor withdraws funds, the withdrawal occurs in two steps: “The master fund [first] transfers the money to the feeder fund (the initial transfer), which subsequently transfers the money to its investor (the subsequent transfer).” Because many of the Madoff feeder funds and their investors were foreign, the issue before the Second Circuit was whether the Madoff trustee’s claims for recovery of assets from foreign feeder fund investors violated the presumption against the extraterritorial application of U.S. law and the principles of international comity.

The trustee’s claims against the feeder fund investors arose under section 550(a)(2) of the Bankruptcy Code, which authorizes the recovery or claw-back of property from subsequent transferees in certain circumstances, including where the transfer is deemed fraudulent and is therefore “avoidable” ( i.e., voidable). Analyzing the statute, the Second Circuit held that the relevant transaction was not the subsequent transfer to foreign investors, but the initial transfer from Madoff’s U.S. “master fund” to the feeder funds. On that basis, the court found that the statute’s “focus” in this case was on U.S. activity. Therefore, the trustee could recover property “regardless of where any initial or subsequent transferee is located.”

The Second Circuit likewise held that considerations of international comity did not hinder the trustee’s attempt to recover assets. In general, international comity allows courts in their discretion to decline jurisdiction over an international case or to limit the international reach of a statute. The court held that “[t]he United States has a compelling interest in allowing domestic estates to recover fraudulently transferred property.” On the other hand, because Madoff Securities was in liquidation in the United States, the court characterized the interests of the foreign jurisdictions where the feeder funds were based (and where they are now in liquidation) as “not compelling.” Finally, the court held that the application of U.S. law would not unfairly surprise the foreign feeder fund investors: “When these investors chose to buy into feeder funds that placed all or substantially all of their assets with Madoff Securities, they knew where their money was going.”

Read the court’s full decision here.

NY Commercial Litigation Report, July 2018
(Vol. 7)

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Court shifts arbitration out of neutral … Second Circuit: The “evident partiality” standard for party-appointed arbitrators is less stringent than for neutral umpires.

Certain Underwriting Members of Lloyds of London v. Florida, Department of Financial Services, 2018 WL 2727492 (2d Cir. Jun. 7, 2018).

In the United States, the Federal Arbitration Act or “FAA” governs many arbitration-related issues, including how to enforce or vacate domestic and international arbitration awards. Chapter 1 of the FAA deals mainly with domestic arbitration and establishes certain limited grounds for vacating an award. One of those grounds is an arbitrator’s “evident partiality,” which exists when “a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.”

With this decision, the Second Circuit joins a number of other federal circuits that have adopted a less stringent test for vacatur of an arbitral award based on a non-neutral party-appointed arbitrator’s evident partiality (as compared with the evident partiality of a neutral umpire). The rationale for this distinction is that a non-neutral party-appointed arbitrator “is expected to espouse the view or perspective of the appointing party,” while the selection of a neutral umpire is informed by an “ethos of neutrality.”

The parties’ dispute arose out of a series of reinsurance treaties. The arbitration Arbitration Panel_CL Report_7.2018agreement provided for ad hoc arbitration before a three-member panel: one party-appointed arbitrator for each party and a neutral umpire. As is typical in reinsurance arbitrations, the arbitration agreement required the arbitrators to have substantial industry experience. Specifically, the clause mandated that the arbitrators “be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters.”

At the start of the arbitration, the insurer-appointed arbitrator failed to disclose any relationship with the insurer. Yet as the reinsurer only discovered after the arbitration was already over, the insurer’s arbitrator in fact had extensive relationships with the insurer’s former and current directors and employees. The arbitrator was the president and CEO of a human resources firm that operated out of the same suite of offices as the insurer. And both current and former executives of the insurer had worked with, or for, the arbitrator’s firm. On that basis, the district court granted the reinsurer’s motion to vacate the panel’s award in favor of the insurer, finding that the undisclosed relationships were “significant enough to demonstrate evident partiality.”

But the Second Circuit reversed. It emphasized the distinction between neutral arbitrators and non-neutral party-appointed arbitrators, “who are expected to serve as de facto advocates.” The court noted the salience of this distinction in the reinsurance industry, where “professional acuity is valued over stringent impartiality.”

Still, the court outlined two “baseline limits to partiality” for non-neutral party-appointed arbitrators—either of which, if violated, may result in vacatur of the award. First, a failure to disclose a party relationship will be deemed material if it violates the arbitration agreement. Second, an undisclosed relationship will be considered material if it “had a prejudicial effect on the award.” The fact that “a reasonable person (or court) could speculate or infer bias” will not suffice absent a “clear showing” that the undisclosed relationship or the non-disclosure itself “influenced the arbitral proceedings or infected an otherwise-valid award.”

The court also emphasized that “arbitration is a creature of contract,” and that New York courts will enforce the parties’ arbitration agreement as written. Parties are free to choose among “various degrees of partiality that inhere in the party-appointment feature.” But in this case, the factual record did not reveal what degree of partiality the parties intended when they specified that the arbitrators should be “disinterested.” As a result, the court remanded the case to the district court to determine if the arbitrator’s failure to disclose “violate[d] the qualification of disinterestedness [in the arbitration agreement] or had a prejudicial impact on the award.”

Read the court’s full decision here.

Ali Baba_NYCLR_7.2018

Open Sesame? The tale of Alibaba and the New York website … Southern District of New York: Foreign cryptocurrency creator’s use of New York-based web hosting company did not confer personal jurisdiction in trademark infringement action brought by Chinese e-commerce giant Alibaba.

Alibaba Group Holding Ltd. v. Alibabacoin Foundation, No. 18-CV-2897(JPO), 2018 WL 2022626 (S.D.N.Y. Apr. 30, 2018).

To adjudicate a dispute, U.S. courts must have personal jurisdiction over the defendant. In cases involving out-of-state defendants, federal courts in New York apply a two-step test for personal jurisdiction. First, courts look to New York’s long arm statute, CPLR 302, which authorizes personal jurisdiction where the defendant “in person or through an agent . . . transacts any business within the state.” Second, if jurisdiction exists under the statute, the court must determine whether the exercise of jurisdiction is consistent with due process under the United States Constitution.

Applying this test, the district court declined to exercise long arm jurisdiction over Alibabacoin, a foreign cryptocurrency creator. Leading Chinese e-commerce conglomerate Alibaba sued Alibabacoin in New York, alleging that the latter’s use of the trademarked term “Alibaba” on its website amounted to trademark infringement. Because Alibaba sought a temporary restraining order and preliminary injunction, it had to demonstrate a reasonable likelihood of establishing personal jurisdiction over Alibabacoin in New York. And to meet that burden, Alibaba had to show (1) that Alibabacoin “purposefully availed itself of the privilege of conducting activities” in New York by projecting itself into the state “to engage in a sustained and substantial transaction of business”; and (2) the existence of an “articulable nexus” or “substantial relationship” between Alibaba’s claim and Alibabacoin’s New York activities.

Standing alone, the court found that Alibabacoin’s operation of its website did not satisfy the “purposeful availment” requirement. Under New York law, the operation of a website does not automatically confer personal jurisdiction. Rather, courts have developed a “spectrum of interactivity” test. This test places passive websites (which “merely make information available to viewers”) at one end of the spectrum and interactive websites (which “knowingly transmit goods or services to users in other states”) at the other end. The court found that Alibabacoin’s website was “highly interactive” and had “significant commercial elements” but deemed these factors insufficient because there was no indication that any sales through the website occurred in New York.

Likewise, the court declined to exercise personal jurisdiction over Alibabacoin based on its engagement of a New York-based company to host its website. Alibabacoin evidently conceded that its relationship with the New York web hosting company satisfied the “purposeful availment” test but argued that it failed to satisfy the separate “articulable nexus” requirement. The court agreed, explaining that Alibaba had cited no case where a court has ever found “that an agreement with a third-party web-hosting company in New York bears an articulable nexus to a trademark infringement claim involving a website.”

The court further declined to exercise personal jurisdiction over Alibabacoin based on its “plans to list its cryptocurrency on exchanges in the United States, including in New York.” Analogizing to securities cases, the court explained that foreign corporations have “substantial latitude to list their securities on New York-based stock exchanges . . . without thereby subjecting themselves to New York jurisdiction for unrelated occurrences.” Finally, the court rejected Alibaba’s attempt to base personal jurisdiction on Alibabacoin’s use of “U.S. dollars to project the value of its cryptocurrency and to quantify its market capitalization.”

Read the court’s full decision here.

Minority (discount) report … New York Court of Appeals: Where a minority partner wrongfully attempts to dissolve a partnership, valuation of the withdrawing partner’s interest is subject to a “minority discount.”

Congel v. Malfitano: 31 N.Y.3d 272 (N.Y. Mar. 27, 2018).

New York partnerships are governed by the state’s Partnership Law (New York’s version of the Uniform Partnership Act). The Partnership Law establishes default rules to govern various partnership-related matters, but parties remain free to contract around the statute in their partnership agreement. Recently, the New York Court of Appeals resolved a previously open question: when a minority partner wrongfully tries to dissolve a partnership but the business continues to operate, how should the minority partner’s interest be valued?

The parties’ dispute arose out of a general partnership formed to own, operate and manage a shopping mall in Poughkeepsie, New York. The written partnership agreement mandated that the partnership “shall continue until it is terminated as hereinafter provided.” The agreement allowed for dissolution of the partnership only upon “[t]he election by the Partners to dissolve the Partnership” or “[t]he happening of any event which makes it unlawful for the business of the Partnership to be carried on or for the Partners to carry it on in Partnership.”

The defendant, a minority partner, attempted to dissolve the partnership. Bypassing the express terms of the partnership agreement, the withdrawing partner relied on the Partnership Law’s general provision authorizing any partner’s unilateral dissolution of an “at will” partnership (that is, a partnership without a fixed term specified in the partnership agreement). But the other partners rejected the minority partner’s dissolution as wrongful and continued to operate the business. The Court agreed, finding that the minority partner’s unilateral dissolution violated the partnership agreement.

Nevertheless, the Partnership Law entitled the minority partner “to have the value of his interest in the partnership, less any damages caused to his copartners by the dissolution, ascertained and paid to him in cash.” But the partnership agreement did not address how to value the minority partner’s interest under these circumstances. As a result, the Court looked to the provisions of the Partnership Law.

In cases involving wrongful dissolution, the Partnership Law contemplates valuing the partnership “as a going concern, rather than an asset to be liquidated.” As the Court explained, wrongful dissolution does not call for “a valuation of the entire business as if it were being sold on the open market,” but instead requires “a determination of the fair market value of the wrongfully dissolving partner’s interest as if that interest were being sold piecemeal and the rest of the business continuing as a going concern.” This approach differs from the analysis under the Revised Uniform Partnership Act, which a number of other states have adopted and which contemplates a valuation of all partnership assets (not just the interest of the withdrawing partner).

Based on the Partnership Law’s focus on the withdrawing partner’s interest, a five-judge majority concluded that “a minority discount is applicable, because a minority interest is worth less to anyone buying that interest alone.” But the partners remain free to “contract out of application of a minority discount to the valuation of their interests” if they wish.

Citing analogous corporate cases and policy reasons, two judges dissented in an opinion authored by Judge Feinman. Rather than applying a minority discount in this case, they would have preferred to value the partnership as a whole, as in those states that have enacted the Revised Uniform Partnership Act.

Read the court’s full decision here.

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New York Commercial Litigation Report Archive | Illustrations by Hank Blaustein

 

This blog post is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

NY Commercial Litigation Report, November 2017
(Vol. 5)

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Please stand back; the doors (on foreign bank subpoenas) are closing … Southern District of New York: Court could not enforce subpoena for discovery in aid of foreign proceedings pursuant to 28 U.S.C. § 1782 without personal jurisdiction over the discovery target.  Court lacked jurisdiction over bank incorporated and headquartered in Australia where the discovery sought was unrelated to the activities of the bank’s New York branch.

Australia and New Zealand Banking Group Limited v. APR Energy Holding Limited, No. 17-MC-00216, 2017 WL 3841874 (S.D.N.Y. Sept. 1, 2017).

A statute known as 28 U.S.C. § 1782 enables parties involved in (or contemplating) litigation anywhere in the world to apply directly to a U.S. federal district court for an order authorizing discovery from any individual or entity that “resides or is found” in that judicial district.  Under the statute, the foreign dispute need not have any connection with the United States.  If the court finds that the statutory requirements for section 1782 discovery are satisfied and certain discretionary factors likewise weigh in favor of granting discovery, the court will authorize service of a subpoena on the discovery target.  Once authorized, section 1782 discovery is subject to the same liberal standards that govern discovery in ordinary U.S. federal court litigation.

Resolving an unsettled question, the district court held that courts “must have personal jurisdiction over” the individual or entity from whom discovery is sought under the Due Process Clause of the United States Constitution in order to enforce a section 1782 subpoena.  The court found that it lacked personal jurisdiction over the discovery target (an Australian bank) where the applicant sought discovery from the foreign bank’s New York branch but there was “no nexus” between the bank’s New York activities and “the subject matter of the discovery sought.”  On that basis, the court granted the bank’s motion to quash (i.e., set aside) the subpoena.

The court found it unnecessary to decide whether the “resides or is found” requirement in section 1782 is a sufficient statutory basis for personal jurisdiction because the constitutional due process requirements were not satisfied in any event.  First, the court found that it lacked general or all-purpose personal jurisdiction over the Australian bank under Daimler AG v. Bauman, 134 S.Ct. 746 (2014).  In Daimler, the United States Supreme Court held that absent “exceptional” circumstances, a corporation is subject to general jurisdiction only at its place of incorporation or principal place of business.  Yet the Australian bank was both incorporated and headquartered in Australia.  And just 2% of the bank’s assets, operating income and profit were attributable to New York, and only 0.3% of its employees were based there—hardly the sort of “exceptional” circumstances that would justify the exercise of general jurisdiction over the bank in New York.  Relying on the Second Circuit’s decision in Brown v. Lockheed Martin Corp., 814 F.3d 619 (2d Cir. 2016) (discussed here), the court further held that the Australian bank could not be deemed to have consented to general personal jurisdiction in New York merely because the U.S. International Banking Act of 1978 governed the bank’s New York operations.

Finally, the court found that it also lacked specific personal jurisdiction over the bank because the subject matter of the discovery sought (relating to a dispute over “turbines in Australia that were leased to an Australian company that received loans from an Australian bank and went into bankruptcy in Australia”) was unrelated to the activities of the bank’s New York branch.  The court declined to authorize jurisdictional discovery, finding that the applicant had not made the necessary “sufficient start” toward establishing personal jurisdiction to justify such discovery.

Read the court’s full decision here.

A rule more honored in the (anticipatory) breach … New York Court of Appeals: The mere filing of a lawsuit for rescission of an agreement is not an anticipatory breach of contract unless it amounts to a “positive and unequivocal” repudiation.

Princes Point LLC v. Muss Development LLC, — N.Y. 3d —, 2017 WL 4680064 (Oct. 19, 2017).

Under New York law, a party’s repudiation of a contractual duty before performance is due amounts to an anticipatory breach of contract.  A party may repudiate a contract either expressly or by its actions, as long as the expression of its intent not to perform is “positive and unequivocal.”  Following a repudiation, the counterparty has two options:  it may ignore the breach and treat the contract as persisting, or it may immediately claim damages for total breach.

Addressing an “unsettled question” of New York law, the Appellate Division, First Department ruled that the filing of an action for rescission (i.e., unwinding) of a contract “before the date of performance constitutes an anticipatory breach” because it “unequivocally evinces the plaintiff’s intent to disavow its contractual obligations.”  But the Court of Appeals disagreed.  It declined to adopt a bright-line rule and instead made clear that careful scrutiny of the circumstances is required.

The plaintiff sought specific performance of an agreement for the purchase of waterfront property on New York’s Staten Island, but sought rescission of certain subsequent amendments on the basis that they were induced by the defendant’s misrepresentations.  The Court of Appeals held that the plaintiff’s effort to avoid the amendments while seeking “specific performance of the original agreement” did not amount to a “positive and unequivocal” repudiation.  Instead, the Court analogized the plaintiff’s lawsuit to a declaratory judgment action, reasoning that the plaintiff was merely seeking “a judicial determination as to the terms of the contract.”  And “the mere act of asking for judicial approval to avoid a performance obligation” did not establish the plaintiff’s intent “not [to] perform that obligation absent such approval.”

Read the court’s full decision here.

A shot in the long arm of New York jurisdiction … New York Court of Appeals: Spanish winery was subject to personal jurisdiction under New York’s long arm statute for failure to pay commissions to its Spanish counterparty based on sales to the winery’s New York distributor.


D&R Global Selections, S.L., v. Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292 (June 8, 2017).

New York’s long arm statute, CPLR 302, authorizes personal jurisdiction over out-of-state defendants on several grounds, including where the defendant “in person or through an agent . . . transacts any business within the state.”  Courts apply a two-part test to determine whether long arm jurisdiction exists on transaction of business grounds.  First, the defendant must have “purposefully availed itself of the privilege of conducting activities” in New York by projecting itself into the state “to engage in a sustained and substantial transaction of business.”  And second, an “articulable nexus” or “substantial relationship” must exist between the plaintiff’s claim and the defendant’s in-state activities.  Additionally, the exercise of long arm jurisdiction is subject to the due process limitations of the United States Constitution.

Applying this test, the Court of Appeals found CPLR 302 long arm jurisdiction over a Spanish winery sued in New York for failure to pay sales commissions to a Spanish plaintiff in Spain.  The gist of the parties’ oral agreement was that the plaintiff would find a distributor to import the winery’s products into the United States, and the winery in turn would pay the plaintiff a commission “at a specified rate on wine sales made to that distributor.”

According to the Court, the winery’s New York activities satisfied the “purposeful availment” requirement for personal jurisdiction.  The winery accompanied the plaintiff to the United States several times, including on one occasion where the plaintiff introduced the winery to the New York-based company that later entered into an exclusive U.S. distribution agreement with the winery.  On that basis, the Court found that “not only was the [winery] physically present in New York on several occasions, but its activities here resulted in the purposeful creation of a continuing relationship with a New York corporation.”

The Court also found that an “articulable nexus” or “substantial relationship” existed between the plaintiff’s claim and the winery’s New York activities.  The Court emphasized that the “articulable nexus” test is “relatively permissive” and is satisfied where “at least one element” of the plaintiff’s claim arises from the defendant’s New York contacts.  To prevail, the Spanish plaintiff would need to show that the winery failed to pay the plaintiff commissions on wine sales to the New York distributor.  Because the plaintiff introduced the winery to the distributor while the winery was in New York promoting its business, the plaintiff’s claim arose from the winery’s transaction of business in New York.

Finally, the Court found that the exercise of long arm jurisdiction over the winery comported with federal due process.  The winery’s multiple visits to New York “to promote its wine with the purpose of finding a United States distributor” and subsequent sales of its wine “to a New York-based distributor” established the necessary “minimum contacts” with New York, and the winery identified “no compelling reason” why the exercise of jurisdiction was unreasonable.

Read the court’s full decision here.

This blog post is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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