Plaintiff-appellant Bank Brussels Lambert appeals from an order of the United States District Court for the Southern District of New York (McKenna,
J.)
granting defendant’s Rule 12(b)(2) motion to dismiss the complaint for lack of personal jurisdiction. Plaintiff brought suit for fraud, breach of fiduciary duty and breach of the implied contractual duties of candor and full disclosure, all in connection with legal services performed on its behalf by defendant-appellee law firm Fiddler Gonzalez & Rodriguez. The district court held that personal jurisdiction over the defendant was unwarranted under New York’s long-arm statute, C.P.L.R. § 302(a) subsections (1), (2) and (3), and under the common law co-conspirator and aider and abettor doctrines.
Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez,
No. 96 Civ. 7233(LMM),
BACKGROUND
Bank Brussels Lambert (“BBL”) is a banking corporation organized and existing under the laws of Belgium, with its principal place of business in Brussels,
Fiddler Gonzalez & Rodriguez (“Fiddler”) is a law firm with its principal place of business in San Juan, Puerto Rico. Many New York corporations, as well as corporations from around the world, retain Fiddler to address issues of Puerto Rican law, and Fiddler appears to derive a substantial percentage of its income from these out-of-state clients. Often, these clients seek Fiddler’s services because of referrals from other clients. The parties dispute whether Fiddler also solicits some business from New York clients through telefaxes. Although most of Fiddler’s assets are located in Puerto Rico, and although Fiddler performs most of its services on the island, Fiddler owns an apartment in Manhattan, which it claims as a business expense on its tax forms, and which at least two partners have used for business trips that were subsequent and unrelated to the transactions in this case.
In November 1989, BBL joined a five-member lending group (collectively, the “banks”) that was negotiating a secured $245,000,000 revolving credit agreement (“RCA”) with two affiliated oil companies, known collectively as “Aroehem.” Aro-chem has its principal place of business in Stamford, Connecticut. The lending group was headed by The Chase Manhattan Bank, N.A. (“Chase New York”), and all five lenders were either New York domicil-iaries or sought to participate in the loan through their New York branches. As principal collateral for the loan, Aroehem offered a security interest in one of its main oil refineries, which was located in Puerto Rico, as well as certain of its inventories.
Before accepting the collateral and closing on the loan, the banks required an opinion from a Puerto Rican law firm concerning the validity and enforceability of the security interests they were acquiring. Chase New York recommended Fiddler for the job, largely because Fiddler had performed well over the course of a longstanding attorney-client relationship with the Chase Manhattan branch in Puerto Rico (“Chase Puerto Rico”). Fiddler was subsequently contacted to help execute the relevant security documents and to provide the needed opinion. In the process, the banks sent Fiddler a draft RCA, which described the contemplated loan transaction and stated that Fiddler’s opinion would be a condition precedent to the loan disbursements as follows:
Initial Loan. The obligation of any Bank to make its initial Loan or the issuance of the initial Letter of Credit hereunder is subject to the receipt by the Agent of the following documents, each of which shall be satisfactory to the Agent in form and substance:
Opinion of Special Puerto Rico Counsel to the Lender. An opinion of Fiddler, Gonzalez & Rodriguez, special Puerto Rico counsel to the Banks, substantially in the Form of Exhibit G hereto.
Draft RCA dated Dec. 19, 1989, at ¶ 6.01(e). Exhibit G, which was also sent to Fiddler, was a model opinion concerning a security interest in Aroehem’s Puerto Rican oil refinery. The draft RCA specified that the agreement would be governed by New York law and contained a New York choice of forum provision. Shortly after receiving these materials, Fiddler agreed to act as the bank’s special Puerto Rican counsel and perform the tasks indicated.
Fiddler performed all of its relevant legal research and writing in Puerto Rico and attended the closing of the relevant security documents on the island. Neither Fiddler’s partners nor its agents entered New York in connection with any of these services. On occasion, however, Fiddler contacted one or more of the banks or
Each of the banks was represented by separate counsel, but the primary liaison between all of the banks and Fiddler was the New York law firm of Milbank, Tweed, Hadley & McCloy (“Milbank Tweed”). After receiving Fiddler’s first draft opinion, both Milbank Tweed and BBL’s separate New York counsel contacted Fiddler to request that the opinion be addressed to all the banks. Fiddler agreed to address the final opinion to:
The Chase Manhattan bank, N.A. (“Chase”) individually, and as Agent for the banks and other Lenders (the “Banks”), and to the Banks party to the Revolving Credit Agreement dated as of January 1, 1990 and to Chase as Inter-creditor Agent for Chase, Drexel Burn-ham Lambert Trade Finance Inc. and the Banks under the Intercreditor Agreement dated as of January 1, 1990
1 Chase Manhattan Plaza New York, New York
Fiddler Opinion at 1. The RCA did not list the addresses of each bank individually, and it is unclear from the record whether Fiddler knew that all five participating banks were either New York banks or New York branches of banks located elsewhere. The final opinion did, however, explicitly reference the RCA transaction and state that “[t]his opinion is being rendered ... for your exclusive benefit in connection with the transactions described herein.” Id.
The final RCA was dated January 1, 1990, and the loan closed in New York on January 17, 1990. The agreement — just like the draft sent to Fiddler — contained New York choice of law and forum provisions. Disbursement of the loan was also still conditioned on Chase New York’s receipt of Fiddler’s opinion. Although the parties dispute whether Fiddler sent its final opinion to Chase in New York or delivered it to one of Chase New York’s agents at the closing of the security documents in Puerto Rico, the opinion was received by January 22, 1990, and- Fiddler addressed it to Chase New York, as agreed. On January 22, 1990, BBL disbursed $75,000,000 to Arochem, as was required under the RCA. BBL made this disbursement from an account in New York.
Nearly two years later, on December 23, 1991, Arochem defaulted on the RCA loan. Shortly thereafter, Will Harris, the president and majority shareholder of Arochem, was convicted of multiple counts of bank fraud,
see United States v.
Harris,
In the course of discovery, Fiddler inadvertently produced several attorney-client memoranda that Chase Puerto Puerto Rico had provided to Pedro Polanco, a Fiddler partner, on January 17, 1990. Although the memoranda were furnished to Polanco on the same day as the RCA closing, they related to a separate representation of Chase Puerto Rico, as Polanco was not involved in any way with the Aro-chem RCA. According to BBL, these exchanged memoranda suggested that Harris had been manipulating the. company’s accounting procedures and financial reports in order to purchase Arochem stock from a second shareholder at an artificially
In light of these newly discovered documents, BBL commenced the present action against Fiddler. BBL complained that Fiddler's opinion merely followed the model Exhibit G and omitted to mention the newly learned information from Chase Puerto Rico, even though the honesty of Arochem's management and the integrity of its financial reporting were relevant to BBL's decision to fund the Arochem loan. BBL argued that Fiddler's actions thus constituted fraud, breach of fiduciary duty and breach of the parties' contract for legal services.
Fiddler responded to BBL's complaint `with a motion to dismiss asserting lack of personal jurisdiction, failure to bring the action within the relevant statutes of limitations and failure to plead fraud with sufficient particularity. The district court dismissed the action for lack of personal jurisdiction, holding that C.P.L.R. § 302 failed to provide a jurisdictional basis for this action against Fiddler. The court also held that BBL failed to allege sufficient facts to establish personal jurisdiction under the common law aider and abettor or co-conspirator doctrines. This appeal followed.
D1SCUSSIO~
A. Standards of Review and the Existence of a Tort
The issue on appeal is whether there are grounds to exercise personal jurisdiction over Fiddler in this case. As a general rule, "the amenability of a foreign corporation to suit in a federal court in a diversity action is determined iii accordance with the law of the state where the court sits, with `federal law' entering the picture only for the purpose of deciding whether a state's assertion of jurisdiction contravenes a constitutional guarantee." Arrowsmith v. United Press Int'l,
When responding to a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant. See Robinson v. Overseas Military Sales Corp.,
With regard to its tort allegations for fraud and breach of fiduciary duty, BBL does not claim that Fiddler’s opinion contained any affirmative misrepresentations. Rather, BBL argues that as result of either its attorney-client relationship with BBL or its contract to provide legal services to BBL, Fiddler had an affirmative duty to disclose information obtained during its separate attorney-client consultation with Chase Puerto Rico on January 17, 1990. Under the law of most states, this contention would be plainly wrong because Fiddler would have had an affirmative duty not to disclose any information obtained under the cloak of the attorney-client privilege.
See, e.g.,
Model Rules of Professional Conduct Rule 1.6 (1995) (imposing broad requirement of client confidentiality); N.Y.Code of Professional Responsibility EC 4-1 (McKinney’s 1998) (“Both the fiduciary relationship existing between lawyer and client and the proper functioning of the legal system require the preservation by the lawyer of confidences and secrets of one who has employed or sought to employ the lawyer.”);
see also In re Grand Jury Subpoena Duces Tecum Dated September 15, 1983,
At this stage, we nevertheless decline to dismiss any of BBL’s arguments on these grounds. Puerto Rico is a mixed civil and
B. Long-Arm Jurisdiction Under the District Court’s Rulings
As stated above, the district court dismissed this case on the ground that it lacked personal jurisdiction over Fiddler under N.Y.C.P.L.R. § 302(a)(1), (2) and (3) and under the common law co-conspirator and aider and abettor doctrines. Although most of these rulings will be mooted if BBL has failed to aver an actionable tort, BBL has properly challenged the district court’s rulings before this Court, and both parties have briefed these issues in detail. In addition, BBL’s argument for jurisdiction under § 302(a)(1) is premised on an allegation of contractual breach as well as tortious conduct. We address jurisdiction under all of the bases asserted by BBL, both in light of these facts and in order to prevent the issues from arising again after remand.
Cf. United States v. Jean-Baptiste,
(1) C.P.L.R. § 302(a)(1) — Transaction of Business or Contract to Supply Goods!Services in New York
BBL argues that the district court has personal jurisdiction over Fiddler under C.P.L.R. § 302(a)(1), which states that “a court may exercise personal jurisdiction over any non-domiciliary ... who in person or through an agent ... [1] transacts any business within the state or [2] contracts anywhere to supply goods or services in the state.... ” This subsection thus has two prongs, either of which can form a basis for the exercise of personal jurisdiction over a non-domiciliary.
See, e.g., Holness v. Maritime Overseas Corp.,
It is well settled that in order for a court to obtain personal jurisdiction over a party under the “transaction of business” prong of § 302(a)(1), the party need not be physically present in the state at the time of service.
See Parke—Bernet Galleries v. Franklyn,
To determine whether a party has “transacted business” in New York, courts must look at the totality of circumstances concerning the party’s interactions with, and activities within, the state.
See, e.g., Peekskill Community Hosp. v. Graphic Media, Inc.,
On the undisputed facts of this case, Fiddler is a law firm located and incorporated in Puerto Rico. It performed all of its legal research and writing services in preparing the Fiddler opinion and closing the relevant security documents in Puerto Rico, and none of its partners or agents either entered New York or were required to be physically present to perform any of these services. Although Fiddler may have solicited some business from New York corporations through tele-faxes, BBL’s Vice President conceded that “[t]he Fiddler firm was proposed by Chase [New York],” and was contacted to perform legal services on the basis of this recommendation. (LaBelle Decl. ¶ 6.) Consequently, the present action does not arise out of any alleged New York business solicitations, as would be required for § 302(a)(1) jurisdiction premised on solicitations.
See, e.g., Holness,
BBL argues, however, that “lawyers and other professionals today transact business with their pens, their fax machines and their conference calls—not with their feet. As such physical presence in New York is
In
Etra v. Matta,
Although Fiddler communicated with plaintiff in New York by phone, fax and possibly mail, the present case is ultimately much more like
Etra
than
Parke-Bemet.
All of Fiddler’s communications involved either the negotiation of the original agreement for legal services, editorial comments during the process of preparing the final Fiddler opinion or interactions concerning the closing of the security documents in Puerto Rico. In none of these communications did Fiddler, like the defendant in
Parke-Bemet,
project itself into New York to participate in any activities localized in the state or to represent the banks during any New York transactions. Although the RCA transaction occurred in New York, there is no allegation, for example, that Fiddler represented the banks during the RCA closing; and the only closing that Fiddler attended was for the security documents, which occurred in Puerto Rico.
Etra
rather than
Parke-Bemet
is the relevant precedent on the facts of this case.
See also Mayes v. Leipziger,
(ii) Contract Anywhere to Supply Goods or Services in the State
BBL also argues that the district court had jurisdiction over Fiddler under the second prong to § 302(a)(1), which extends jurisdiction to defendants who “contract anywhere to supply goods or services in the state.” The New York Legislature added this second prong to the provision in 1979 in order to “ease the plight of New York residents seeking to obtain jurisdiction over those outside its borders who may be deemed virtually or constructively to do business in this state.”
Waldorf Associates, Inc. v. Neville,
In support of its argument for § 302(a)(1) jurisdiction, BBL cites
Schur v. Porter,
Although Fiddler’s opinion was a condition precedent to the closing of the RCA, and although this transaction took place in New York and was governed by New York law, BBL has not alleged that Fiddler was ever involved in the closing of that deal via telephone or otherwise. Nor did Fiddler’s duties involve any representation in connection with the closing. Thus, unlike in Schur and Parke-Bemet, Fiddler never projected itself into New York to perform services in the state and never purposefully availed itself of the privileges and benefits of performing any services in the state. All of the relevant services in this case were in fact performed in Puerto Rico, and § 302(a)(1) jurisdiction is therefore inappropriate.
(2) C.P.L.R. § 302(a)(2): Tort Inside
BBL next argues that the district court has personal jurisdiction over Fiddler pursuant to C.P.L.R. § 302(a)(2), which gives the court “personal jurisdiction over any non-domiciliary ... who in person or through an agent ... commits a tortious act within the state....” At min
As BBL concedes, its position is plainly inconsistent with this Court’s recent interpretation of § 302(a)(2) in
Bensusan Restaurant Corp. v. King,
adopted the view that C.P:L.R. § 302(a)(2) reaches only tortious acts performed by a defendant who was physically present in New York when he performed the wrongful act. The official Practice Commentary to C.P.L.R. § 302 explains that “if a New Jersey domiciliary were to lob a bazooka shell across the Hudson River at Grant’s tomb, Feathers would appear to bar the New York courts from asserting personal jurisdiction over the New Jersey domiciliary [under § 302(a)(2)] in an action by an injured New York plaintiff.”
Bensusan,
BBL asks us to revisit Bensusan and decide whether a defendant’s physical presence is required under New York law when a defendant sends affirmative misrepresentations into the state. This is not the case for such a re-evaluation, however. BBL’s theory of fraud is premised on the contention that Fiddler, by virtue of either its attorney-client relationship with the banks or its contract for legal services, acquired an affirmative duty to disclose any materially relevant information obtained during its attorney-client representation of Chase Puerto Rico on January 17, 1990. BBL is thus suing not for affirmative misrepresentations placed in the final opinion but rather for Fiddler’s failure to transmit this information at all. Fiddler’s actions were more akin to an omission than to an act of sending misrepresentations into the state, and under New York law,
[t]he failure of a man to do anything at all when he is physically in one State is not an “act” done or “committed” in another State. His decision not to act and his not acting are both personal events occurring in the physical situs. That they may have consequences elsewhere does not alter their personal localization as acts.
Platt Corp. v. Platt,
(3) C.P.L.R. § 302(a)(3): Tort Outside/Injury Inside
BBL next argues that the district court had personal jurisdiction over Fiddler under C.P.L.R. § 302(a)(3), which extends to any non-domiciliary who in person or through an agent:
commits a tortious act without the state causing injury to person or property within the state ... if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce. .
The district court declined to exercise personal jurisdiction under this subsection because, in its view, although the alleged torts of omission occurred in Puerto Rico, "the situs of the injury to [BBL] cannot be considered to have been New York." Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, No. 96 Civ. 7233(LMM),
As the district court noted, courts determining whether there is injury in New York sufficient to warrant § 302(a)(3) jurisdiction must generally apply a situs-of-injury test, which asks them to locate the "original event which caused the injury." See Hermann v. Sharon Hosp., Inc.,
In Hermann, for example, a group of doctors practicing in Connecticut were alleged to have negligently injured a patient who was visiting from New York. The tort in He'rmann occurred in Connecticut because the doctors performed all of the relevant medical services in Connecticut. The plaintiff, however, felt the consequences when she was back in New York. The court nevertheless refused to find injury in New York because "[tihe situs of injury is the iocation of the original event which caused the injury, not the location where the resultant damages are subsequently felt by plaintiff." Id. at 583 (emphasis added). The court viewed this "original event" as having occurred in where the plaintiff was located when she received the medical treatment, and where the first effects of the doctors' alleged negligence-whether felt or not-were inflicted.
In Sybron Corp. v. Wetzel,
The only jurisdictional question in this case was related to De Dietrich, see id. at 203,
In the case of fraud or breach of fiduciary duty committed in another state, the critical question is thus where the first effect of the tort was located that ultimately produced the final economic injury. Although the alleged omissions in this case occurred in Puerto Rico, New York was the place where BBL first disbursed its funds to Arochem. BBL argues that it disbursed these funds only because it was unaware of the information that Chase Puerto Rico conveyed to Fiddler on January 17, 1990. It was also this disbursement that was the first step in the process that generated the ultimate economic loss to BBL. Much like Sybron's loss of New York customers, the disbursement of funds in this case was thus the first effect of the tort that caused the injury-or, alternatively stated, the "original event that caused the injury." See also Hargrave v. Oki Nursery, Inc.,
Meeting the situs-of-injury test is, however, not enough to establish jurisdiction under § 302(a)(3). A plaintiff must also meet one of two additional sets of requirements: under subpart (i), that the defendant “regularly ... solicited] business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered” in New York; or under subpart (ii), that the defendant “should [have] reasonably expeet[ed] the [tortious] act to have consequences in the state and derive[d] substantial revenue from interstate or international commerce.”
Because the district court denied § 302(a)(3) jurisdiction after finding that the injury alleged in this case occurred outside of New York, the court never addressed the additional requirements for jurisdiction under subparts (i) or (ii) of this subsection. It is, moreover, unclear from the record whether discovery was ever fully completed on these issues. Further proceedings are therefore necessary to determine whether BBL can establish jurisdiction under § 302(a)(3), assuming that a tort has been adequately alleged.
(4) Aider and Abettor and Co-Conspirator Doctrines
BBL also argues that personal jurisdiction is warranted under the common law co-conspirator and aider and abettor doctrines. The district court was correct to conclude that these doctrines “are not pertinent because the complaint does not allege that defendant conspired with, or aided and abetted, anyone (including Chase, which plaintiff seems to have in mind).”
Bank Brussels Lambert,
For the reasons discussed, we affirm the district court’s denial of personal jurisdiction over Fiddler on the basis of C.P.L.R. § 302(a) subsections (1) and (2) and under the common law aider and abettor and co-conspirator doctrines. We find, however, that (assuming arguendo that there has been a tort) the injury alleged in this case took place in New York, where BBL first disbursed its funds in connection with the RCA transaction, and that the district court therefore denied § 302(a)(3) jurisdiction on an erroneous ground. We also note, however, that Fiddler may have had a duty not to disclose to BBL information received from another client in another representation. Consequently, BBL may not have averred sufficient facts to establish a tort in this case, as is required for jurisdiction under § 302(a)(3). We therefore remand to determine whether BBL has sufficiently averred an actionable tort, whether the requirements for jurisdiction under subparts (i) or (ii) of § 302(a)(3) have also been met, and, if both of these questions are answered in the affirmative, whether an exercise of jurisdiction in this case would comport with federal due process requirements.
Notes
. C.P.L.R. § 302(a)(2) allows for “personal jurisdiction over any non-domiciliary ... who in person or through an agent ... commits a tortious act within the state ....’’ (Emphasis added).
. C..P.L.R. § 302(a)(3) allows for personal jurisdiction over “any non-domiciliary ... who in person or through an agent ... commits a tortious act without the state causing injury to person and property within the stale,” so long as certain other requirements are also met, as outlined in subsections (i) and (ii). (Emphasis added.)
. The cause of action need not be for breach of contract, however.
See Singer v. Walker,
. In finding that the situs of injury was New York, the court stated not only that "the economic injury plaintiff seeks to avert stems from the threatened loss of New York customers" but that "it is New York where plaintiff manufactures and relined glass-lined equipment and the alleged trade secrets were acquired." Sybron,