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Commercial Division Holds That Electronic Communications Between Out-of-State Defendant and New York-Based Company Can Support the Exercise of Personal Jurisdiction Over Defendants in New York

In High Street Capital Partners, LLC v. ICC Holdings, LLC, Justice Joel M. Cohen of the Commercial Division denied defendants ICC Holdings, LLC (“ICC”) and related entities’ (collectively, “Defendants”) motion to dismiss plaintiff High Street Capital Partners, LLC’s (“High Street”) action for breach of contract for lack of personal jurisdiction and forum non conveniens.[1]  The court’s decision addressed issues of whether electronic communications between an out-of-state defendant and a New York-based company are sufficient to satisfy the requirements of New York’s long-arm statute and render New York a convenient forum.

Factual Background

High Street is a New York-based company operating in the cannabis industry, and Defendants are Illinois-based companies operating in the medical marijuana industry.[2] 

On March 5, 2018, High Street and ICC entered into a Letter of Intent (the “LOI”) in furtherance of negotiations concerning High Street’s acquisition of certain assets from Defendants.[3]  In its Complaint, High Street alleged that Defendants breached the LOI by violating its exclusivity provision which prohibited Defendants from negotiating with other companies about the sale of Defendants’ business.[4]

High Street also alleged that New York courts have jurisdiction over this matter because Defendants directed their actions to New York by (1) directing calls to High Street’s New York offices to discuss the LOI; (2) negotiating three extensions of the exclusivity provision through regular communications with High Street in New York; (3) transmitting emails containing draft and executed agreements to High Street in New York; (4) receiving deposit payments from High Street which High Street initiated from New York; and (5) meeting in person with High Street twice at High Street’s New York headquarters.[5]

Defendants moved to dismiss the case for lack of personal jurisdiction and forum non conveniens.[6]

Justice Cohen’s Opinion

Personal Jurisdiction

The Court began its analysis by determining whether Defendants’ contacts with New York were sufficient to establish personal jurisdiction under New York’s long-arm statute.  The Court noted that two requirements must be met for the Court to exercise personal jurisdiction over a non-domiciliary: (1) defendant must have transacted business in New York, and (2) “some articulable nexus” must exist between the business transacted and the cause of action.[7] 

The Court found that both requirements were met.  The Court reasoned that “the ‘purposeful creation of a continuing relationship with a New York corporation’[8] supports the exercise of personal jurisdiction…‘even though the defendant never enters New York.’”[9]  It added that “New York courts have ‘recognized CPLR 302(a)(1) long-arm jurisdiction over commercial actors and investors using electronic and telephonic means to project themselves into New York to conduct business transactions,”[10] and concluded that Defendants’ “digital dealings fit into a long line of case law which predicates personal jurisdiction on remote—but purposeful—contact.”[11]

Moreover, the Court rejected Defendants’ contention that all of their relevant actions took place entirely in Illinois.  The Court explained that while Defendants may have physically been “located in Illinois for every email, phone call, or text that they exchanged with High Street…the focus must be on the business being transacted, not on Defendants’ physical location.”[12]

The Court concluded that exercise of personal jurisdiction in this case comported with federal due process requirements because Defendants had sufficient contacts with New York through their negotiation of business with a New York entity, and by directing phone calls, emails, deal documents, and other communications to New York.[13]

Forum Non Conveniens

The Court also denied Defendants’ motion to dismiss under the doctrine of forum non conveniens because Defendants did not meet “the high burden of displacing a New York plaintiff’s choice of a New York forum.”[14]

The Court noted that New York courts must consider several factors to determine whether an action should be heard in another forum, including the residence of the parties, the situs of the underlying transaction, the existence of an adequate alternative forum, the location of potential witnesses and relevant documents, potential hardship to the defendant, and the burden on New York courts.[15]  However, the First Department has noted that “the residence of a plaintiff…has been held to generally be the most significant factor in the equation.”[16]

In denying Defendants’ motion, the Court reasoned that High Street resides in New York, engaged in the LOI from New York, and felt the effects of Defendants’ alleged breach in New York.[17] 

The Court also rejected Defendants’ argument that litigating the case in New York would impose an undue hardship on Defendants, finding that Defendants “chose to direct their business efforts towards this state.”[18] 

Finally, the Court found that there is no undue burden imposed on the Court to adjudicate the action in New York because commercial disputes of this nature are routinely adjudicated in the Commercial Division, and New York courts are fully capable of applying the laws of other states.[19] 

Conclusion

Justice Cohen held that New York courts recognize that electronic communications from a non-domiciliary to a New York plaintiff as part of a business transaction can support the exercise of jurisdiction over defendants in New York even if defendants have no physical presence in New York.  Although Defendants’ offices and employees were physically located in Illinois, the Court held that their phone calls, emails, and other communications with High Street personnel in New York constituted purposeful contacts with New York sufficient to support the exercise of personal jurisdiction over them.  The Court also held that New York is not an inconvenient forum because High Street is located in New York and there is no undue burden associated with litigating this lawsuit in a New York court.

 

[1] High Street Capital Partners, LLC v. ICC Holdings, LLC, No. 652592/2018, 2019 BL 180439 (Sup. Ct. May 14, 2019) (“High Street”).

[2] Id. at *1.

[3] Id.

[4] Id.

[5] Id. at *1-2.

[6] Id. at *5.

[7] Id. at *2 (quoting McGowan v. Smith, 52 N.Y.2d 268, 272 (1981)).

[8] High Street, 2019 BL 180439, at *2 (quoting Fischbarg. v. Doucet, 9 N.Y.3d 375, 380 (2007)).

[9] High Street, 2019 BL 180439, at *2 (quoting Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006)).

[10] High Street, 2019 BL 180439, at *2-3 (quoting Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006)).

[11] High Street, 2019 BL 180439, at *3 (collecting cases).

[12] Id. at *4.

[13] Id. at *5-6.

[14] Id. at *7.

[15] Id. at *6.

[16] Id. at *7 (quoting Thor Gallery at South DeKalb, LLC v. Reliance Mediaworks (USA) Inc., 131 A.D.3d 431, 432 (1st Dep’t 2015)).

[17] High Street, 2019 BL 180439, at *7.

[18] Id.

[19] Id.