700 F. App'x 66
2d Cir.
2017
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Background

  • Plaintiffs Hau Yin To and Cheng Hye Cheah sued multiple HSBC entities alleging claims related to funds tied to Bernard L. Madoff Investment Securities LLC (BLMIS).
  • Defendants included several foreign HSBC entities (foreign defendants) and HSBC Bank USA, N.A. (HSBC USA).
  • The District Court dismissed all claims for lack of personal jurisdiction over the foreign defendants and held plaintiffs lacked standing to bring direct claims against HSBC USA under British Virgin Islands (BVI) law.
  • Plaintiffs appealed, arguing the District Court erred on personal jurisdiction under N.Y. C.P.L.R. § 302(a)(1)–(2), should have applied New York’s choice-of-law interest analysis, and should have applied New York law on standing to sue HSBC USA.
  • The Second Circuit reviewed jurisdiction, choice-of-law, and standing de novo and considered whether plaintiffs made a prima facie showing of purposeful availment or an agency relationship sufficient for jurisdiction, and whether New York or BVI law governed standing.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Personal jurisdiction over foreign defendants under N.Y. C.P.L.R. § 302(a)(1) Plaintiffs argued foreign defendants transacted business in NY (communications, fund administration, correspondent accounts) giving rise to jurisdiction Foreign defendants argued communications and ordinary correspondent-account maintenance do not constitute purposeful availment or a transaction of business in NY No personal jurisdiction: communications and routine correspondent-account contacts insufficient to establish §302(a)(1) jurisdiction
Agency-based jurisdiction under N.Y. C.P.L.R. § 302(a)(2) Plaintiffs contended BLMIS acted as agent of certain foreign defendants, establishing jurisdiction through BLMIS’s NY contacts Defendants said plaintiffs failed to allege actual exercise of control by defendants over BLMIS (only possible legal ability to control) No agency relationship shown; plaintiffs failed to allege realities of control required for §302(a)(2) jurisdiction
Jurisdictional discovery Plaintiffs sought jurisdictional discovery to develop facts supporting jurisdiction Defendants argued discovery unnecessary because plaintiffs made no prima facie showing District Court did not abuse discretion in denying discovery because plaintiffs failed to make prima facie jurisdictional showing
Choice of law and standing to sue HSBC USA Plaintiffs argued District Court should apply NY interest analysis and NY law gives shareholders direct standing Defendants argued internal affairs of the fund are governed by place of incorporation (BVI), and plaintiffs lack standing under BVI law BVI law governs under New York’s interest/internal affairs analysis; plaintiffs concede they lack standing under BVI law, so claims against HSBC USA fail

Key Cases Cited

  • Best Van Lines, 490 F.3d 239 (2d Cir. 2007) (standard of review and guidance on jurisdictional discovery)
  • CutCo Industries, Inc. v. Naughton, 806 F.2d 361 (2d Cir. 1986) (transaction-of-business and agency-for-jurisdiction principles)
  • Ehrenfeld v. Bin Mahfouz, 9 N.Y.3d 501 (N.Y. 2007) (purposeful availment test in New York)
  • D&R Glob. Selections, S.L. v. Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292 (N.Y. 2017) (solicitation/continuing relationship standard)
  • Paterno v. Laser Spine Inst., 24 N.Y.3d 370 (N.Y. 2014) (purposeful availment discussion)
  • Fischbarg v. Doucet, 9 N.Y.3d 375 (N.Y. 2007) (communications alone do not establish jurisdiction)
  • Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (N.Y. 2012) (limitations of correspondent-account jurisdictional theory)
  • Rushaid v. Pictet & Cie, 28 N.Y.3d 316 (N.Y. 2016) (when repeated correspondent-account use can support jurisdiction)
  • Grove Press, Inc. v. Angleton, 649 F.2d 121 (2d Cir. 1981) (agency-for-jurisdiction test requiring benefit, knowledge, consent, and control)
  • Zerman v. Ball, 735 F.2d 15 (2d Cir. 1984) (federal courts apply forum state choice-of-law rules)
  • Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325 (2d Cir. 2005) (New York actual-conflict requirement and choice-of-law guidance)
  • Matter of Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219 (N.Y. 1993) (interest-analysis framework)
  • Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66 (N.Y. 1993) (interest-analysis: apply law with greatest interest)
  • Zion v. Kurtz, 50 N.Y.2d 92 (N.Y. 1980) (internal affairs doctrine applies to shareholder-director relations)
  • Greenspun v. Lindley, 36 N.Y.2d 473 (N.Y. 1975) (application of internal affairs principle)
  • Scottish Air Int'l, Inc. v. British Caledonian Grp., PLC, 81 F.3d 1224 (2d Cir. 1996) (internal affairs and choice-of-law discussion)
  • In re B.P. p.l.c. Derivative Litig., 507 F. Supp. 2d 302 (S.D.N.Y. 2007) (application of internal affairs and when place of incorporation may not govern)
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