District Court Dismisses Claims against Non-Signatories to Promissory Note because Requirements of “Alter Ego” Liability not met

The World in U.S. Courts: Winter 2016 - Personal Jurisdiction | September.30.2016

Centauro Liquid Opportunities Master Fund L.P. v. Bazzoni, US District Court for the Southern District of New York, September 30, 2016

Centauro Liquid Opportunities Master Fund, L.P. brought breach of contract, fraud, and fraudulent inducement claims to recover $20 million it claimed to be owed under the terms of a promissory note.  Some of the defendants had signed the note and some did not.  Claims were made against the non-signatory defendants on the theory that they were “alter egos” of the signatory defendants.  Supporting the alter-ago theory, Centauro alleged that non-signatory defendants freely transferred assets to one another and shared a “beneficial relationship,” that press releases failed to distinguish between a signatory and a non-signatory defendant, and that money owed to one non-signatory defendant was paid to another.

The District Court in New York explained that jurisdiction over the non-signatory defendants required a two-part analysis to determine whether there is a statutory basis for personal jurisdiction under the law of New York (the forum state), and whether due process concerns under the federal Constitution otherwise prohibit the assertion of jurisdiction.  If any of the defendants were found to be “alter egos” of one another, jurisdiction over one would attach to all of them.  The Court noted that as a federal court hearing non-federal claims based on the diverse citizenship of the parties, it was required to look to the law of New York, where the Court sat, to analyze the “alter ego” issue.  New York’s choice-of-law rules in turn directed application of the substantive English law of the British Virgin Islands, where the signatory defendants were located and which had the greatest interest in the litigation.  Applying English law, the Court found that Centauro had failed to allege facts sufficient to “pierce the corporate veil” and establish alter-ego liability, and therefore dismissed the non-signatory defendants form the case.

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