District Court Finds Personal Jurisdiction Over Four Uruguayan Citizens Who Opened Their Accounts in Uruguay But Who Maintained an Ongoing Investment Account and Conducted Securities Transactions in New York

The World in U.S. Courts: Summer 2015 - Personal Jurisdiction/Forum Non Conveniens

Bank Leumi USA v. Ehrlich, U.S. District Court for the Southern District of New York, March 23, 2015

Four Uruguayan investors who were account holders at Bank Leumi USA ("BLUSA") alleged that they had suffered losses from bond purchases. BLUSA filed suit in a U.S. District Court in New York for a declaration that it was not liable. Both parties moved for summary judgment, with the investors arguing that the Court could not exercise personal jurisdiction over them. BLUSA argued that personal jurisdiction was established by a forum selection clause in an agreement the investors signed when they opened an account in the Uruguay branch of BLUSA's Israeli parent bank. Alternatively, they argued that jurisdiction attached under general principles of New York law.

The "International Account Application" signed by the investors to open their account at BLUSA's Uruguayan affiliate included a forum selection clause providing that any legal proceeding arising from the agreement could be brought in any state or federal court located in New York County, and that the defendants consented to personal jurisdiction in those courts

The District Court hearing the dispute did not reach the question whether the forum selection clause applied because it found jurisdiction under general principles of New York law and the Due Process Clause of the U.S. Constitution. In the case of an alleged breach of contract, New York Law provides that specific personal jurisdiction may be asserted over anyone who "transacts any business within the state or contracts anywhere to supply goods or services in the state," and the claim arises under that contact. To determine whether this test has been met, the Court applied precedent requiring consideration of the following factors: (1) whether the defendant has an on-going contractual relationship with a New York corporation, (2) whether the contract was negotiated or executed in New York, and whether after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship, (3) what the choice-of-law clause is in any such contract, and (4) whether the contract requires franchisees to send notices and payments into the forum state or subjects them to supervision by the corporation in the forum state.

The Court found that these requirements had been satisfied. Defendants had a decade-long contractual relationship with BLUSA, a New York bank, and purchased and sold over $11 million of securities during that time through New York-based BLUSA brokerage accounts. Although Defendants filled out the applications in Montevideo, the agreement itself was not executed until the applications were sent to New York. Moreover, the agreements contained choice-of-law provisions identifying New York law as controlling. Finally, each time Defendants entered into a securities transaction for their BLUSA accounts, the trades were executed in New York, including the trade involving the bonds at issue. The Court determined that these facts met each of the first three factors and reasoned that the final factor, which concerns the sending of notices and payment into the forum state, was inapplicable to this case and therefore a neutral factor in deciding whether Defendants transacted business in New York. The Court held more generally that the quality of a non-domiciliary's contacts with New York are sufficient to confer jurisdiction when it maintains an ongoing investment account in New York and conducts securities transactions through that account.

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