Conspiracy Theory Jurisdiction. Who Knew?

Print Article

Posted on: May 31 2023

Section 3211(a)(8) of the Civil Practice Law and Rule (“CPLR”) allows a party to “move for judgment dismissing one or more causes of action asserted against him on the ground that … the court has not jurisdiction of the person of the defendant.”

Whether the court has personal jurisdiction over a non-domiciliary involves a two-part inquiry: (1) the exercise of jurisdiction must be permissible under New York’s long-arm statute; and (2) the exercise of jurisdiction must comport with due process.¹ “Due process requires that a nondomiciliary have ‘certain minimum contacts’ with the forum and ‘that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’”² The minimum contacts test requires an examination of “whether a defendant’s ‘conduct and connection with the forum State’ are such that it ‘should reasonably anticipate being haled into court there.’”³ When analyzing whether “[t]he prospect of defending a suit in the forum State … comport[s] with traditional notions of ‘fair play and substantial justice,’” the court must ask what is reasonable.⁴ Specifically, the court must consider “‘the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies.’”⁵ “If either the statutory or constitutional prerequisite is lacking, the action may not proceed.”⁶

CPLR § 302(a)(2) provides for personal jurisdiction over a non-domiciliary who “in person or through an agent … commits a tortious act within the state.” For the purposes of conspiracy jurisdiction, “[u]sing a New York bank account for a fraudulent scheme constitutes a tort within New York.”⁷ A co-conspirator’s actions in New York as the agent for an out-of-state co-conspirator can provide a basis for personal jurisdiction under CPLR § 302(a)(2).⁸

To establish jurisdiction predicated upon a civil conspiracy theory, the plaintiff must establish a prima facie case of conspiracy and that the defendant was a member.⁹ The plaintiff must also “demonstrate the commission of an overt act in New York during, and pursuant to, the conspiracy.”¹⁰

A prima facie case of civil conspiracy requires the plaintiff to “demonstrate the primary tort, plus the following four elements: an agreement between two or more parties; an overt act in furtherance of the agreement; the parties’ intentional participation in the furtherance of a plan or purpose; and resulting damage or injury.”¹¹ The plaintiff must plead factual allegations sufficient to infer that a corrupt agreement exists.¹² The facts alleged must “support[] a meeting of the minds, such that defendants entered into an agreement, express or tacit, to achieve the unlawful end,”¹³ or show that the defendant “took ‘common action for a common purpose by common agreement or understanding … from which common responsibility derives.’”¹⁴ Intentional participation may be inferred from the overt acts a defendant takes in furtherance of a conspiracy.¹⁵ “Bare, conclusory allegations of conspiracy are insufficient.”¹⁶

Membership in a conspiracy is established by demonstrating that “(a) the [out-of-state] defendant had an awareness of the effects in New York of its activity; (b) the activity of the co-conspirators in New York was to the benefit of the out-of-state conspirators; and (c) the co-conspirators acting in New York acted at the direction or under the control, or at the request of or on behalf of the out-of-state defendant.”¹⁷

In Bangladesh Bank v. Rizal Commercial Banking Corp., 2023 N.Y. Slip Op. 02844 (1st Dept. May 30, 2023) (here), plaintiff sought to obtain jurisdiction over certain defendants based on allegations that they were co-conspirators. In particular, Bangladesh Bank concerned whether the court could exercise personal jurisdiction over defendants Bloomberry Resorts and Hotels, Inc. (“BRHI”) d/b/a Solaire Resort & Casino and Eastern Hawaii Leisure Company, Ltd. (“EHL”) d/b/a Midas Hotel & Casino under, inter alia, CPLR § 302(a)(2).

Bangladesh Bank arose from an international money laundering scheme where the participants stole more than $101 million from an account plaintiff maintained at the Federal Reserve Bank of New York (“New York Fed”). Unknown North Korean hackers allegedly infiltrated plaintiff’s computer network in Bangladesh and issued multiple unauthorized payment orders to transfer funds from plaintiff’s New York Fed account to various bank accounts in the Philippines and elsewhere. The stolen funds were then laundered through two gambling casinos in the Philippines operated by defendants BRHI and EHL.

Plaintiff sued, pleading nine causes of action against defendants.

BRHI and defendant Kam Sin Wong a/k/a Kim Wong (“Wong”), the owner of EHL, moved to dismiss on, inter alia, jurisdictional grounds. We examine BRHI’s motion as it pertained to civil conspiracy jurisdiction.

BRHI argued that plaintiff failed to plead the elements of a civil conspiracy. BRHI contended that plaintiff failed to allege that BRHI was aware of the effect in New York of its actions, that the New York co-conspirators’ activity was for BRHI’s benefit, or that the New York co-conspirators’ acted at BRHI’s request, direction or control.

The motion court agreed, holding that plaintiff failed to plead a conspiracy in which BRHI was a participant.

First, the motion court held that plaintiff failed to allege facts sufficient to plausibly infer a common agreement. The motion court rejected plaintiff’s “information and belief” allegation that BRHI entered into an agreement to convert and launder plaintiff’s money, stating that such allegations were conclusory. Moreover, said the motion court, there were no allegations to infer that BRHI was a knowing participant in a conspiracy.

Noting that circumstantial evidence could suffice to establish the existence of a conspiracy, the motion court found that plaintiff’s allegations were insufficient to do so. For example, said the motion court, the fact that BRHI and Wong enjoyed a professional relationship was not enough to conclude that BRHI agreed to participate in the scheme because “financial self-interest is not the same as furthering a conspiracy.”¹⁸

Second, explained the motion court, plaintiff failed to plead “independent culpable behavior” linking BRHI to the conspiracy,¹⁹ or that BRHI “‘planned and perpetrated’ the acts in concert” with the other defendants.²⁰

Third, the motion court found that plaintiff failed to adequately allege that BRHI knowingly or intentionally participated in the scheme by way of an overt act or acts. The motion court explained that simply because BRHI allowed gambling in its casino did not necessarily equate to its intentional participation in an illicit scheme. Given the absence of facts alleging that anyone employed by BRHI was aware that plaintiff’s stolen funds were being laundered through its casino, and BRHI’s failure to stop the conspirators from gambling after press reports, said the motion court, did alone not constitute intentional participation.

Fourth, the motion court found that plaintiff failed to connect BRHI to the New York activities of the alleged co-conspirators. The complaint, said the motion court, did not contain a specific allegation that BRHI knew of the theft of plaintiff’s funds in New York. The motion court noted that plaintiff only alleged, upon information and belief, that BRHI knew or should have known that the junkets were being used to launder stolen funds.

Finally, the motion court found that the complaint did not contain an allegation that BRHI was aware its conduct would have an effect in New York. The motion court explained that plaintiff did not plead facts suggesting that the North Korean hackers or anyone else acted at the behest of or on behalf of, or under the control of BRHI.

Because the complaint provided no facts suggesting that BRHI conspired with any actor, the motion court held that plaintiff did not sustain its burden of demonstrating that CPLR § 302(a)(2) conferred jurisdiction over BRHI.

The Appellate Division, First Department affirmed the dismissal of the complaint against BRHI, holding that the motion court “did not have personal jurisdiction over BRHI pursuant to CPLR 302(a)(2).”²¹

The Court found that “plaintiff fail[ed] to adequately allege that BRHI was aware or should have been aware that it was funds stolen from New York that were laundered at the Solaire casino, such that BRHI could be deemed to have been aware of the effects of its activities in New York.”²²

The Court also found that plaintiff “fail[ed] to allege that the conspirators’ conduct in New York was at BRHI’s direction or on its behalf.”²³

Takeaway

New York recognizes a conspiracy theory as the basis for exercising personal jurisdiction over a non-domiciliary under CPLR § 302(a)(2). To meet the burden required to satisfy this theory, the party asserting jurisdiction must allege (1) a tortious act committed by any co-conspirator in New York and a prima facie showing of conspiracy, and (2) facts raising an inference that the non-domiciliary defendant is a member of the conspiracy. A prima facie showing of conspiracy requires (a) a corrupt agreement, (b) an overt act furthering the agreement, (c) the conspirators’ intentional participation furthering the plan, and (d) resulting damage.

A non-domiciliary co-conspirator is a “member[] of the alleged conspiracy” if (a) he/she knew of the effects of the New York activity, (b) the co-conspirators’ activity in New York was for the benefit of the out-of-state conspirator, and (c) the co-conspirators acted in New York at the behest of or on behalf of, or under the control of the non-domiciliary co-conspirators. Both inquiries are consider together since the same facts generally support both.

Importantly, conclusory allegations will not suffice.

In Bangladesh Bank the motion court held that plaintiff could not satisfy many of the elements of a conspiracy to warrant the exercise of personal jurisdiction over BRHI. As noted, the motion court found that plaintiff failed to demonstrate that, among other things, BRHI was a knowing participant in the conspiracy, BRHI had prior knowledge of the theft in New York, BRHI knew of the theft of plaintiff’s funds in New York, and BRHI was aware its conduct would have an effect in New York. Without sufficient factual evidence, whether direct or circumstantial evidence, plaintiff could not satisfy its burden of demonstrating that CPLR § 302(a)(2) conferred jurisdiction over BRHI.

Looking at the record in its totality, the First Department agreed with the motion court and affirmed the dismissal of the complaint as to BHRI on jurisdictional grounds.

Footnotes

Williams v. Beemiller, Inc., 33 N.Y.3d 523, 528 (2019).
Id. (citations omitted).
LaMarca v. Pak-More Mfg. Co., 95 N.Y.2d 210, 216 (2000) (citations omitted).
Id. at 217 (internal quotation marks and citation omitted).
Rushaid v. Pictet & Cie, 28 N.Y.3d 316, 331 (2016) (citation omitted).
Williams, 33 N.Y.3d at 528.
FIA Leveraged Fund Ltd. v. Grant Thornton LLP, 150 A.D.3d 492, 495 (1st Dept. 2017) (citation omitted).
See Wimbledon Fin. Master Fund, Ltd. v. Weston Capital Mgt. LLC, 160 A.D.3d 596, 596 (1st Dept. 2018).
See Small v. Lorillard Tobacco Co., 252 A.D.2d 1, 17 (1st Dept. 1998), aff’d, 94 N.Y.2d 43 (1999).
Best Cellars, Inc. v. Grape Finds at Dupont, Inc., 90 F. Supp. 2d 431, 446 (S.D.N.Y. 2000) (citations omitted).
Cohen Bros. Realty Corp. v. Mapes, 181 A.D.3d 401, 404 (1st Dept. 2020) (citation omitted).
FIA Leveraged Fund, 150 A.D.3d at 495 (citing, Abrahami v. UPC Constr. Co., 176 A.D.2d 180, 180 (1st Dept. 1991)).
Chen Gang v. Zhao Zhizhen, 799 Fed. Appx. 16, 19 (2d Cir. 2020) (quoting, Webb v. Goord, 340 F.3d 105, 110-111 (2d Cir. 2003)).
IDX Capital, LLC v. Phoenix Partners Group LLC, 83 A.D.3d 569, 571 (1st Dept. 2011), aff’d, 19 N.Y.3d 850 (2012) (quoting, Goldstein v. Siegel, 19 A.D.2d 489, 493 (1st Dept. 1963)).
See Cleft of the Rock Found. v. Wilson, 992 F. Supp. 574, 582 (E.D.NY. 1998).
Kovkov v. Law Firm of Dayrel Sewell, PLLC, 182 A.D.3d 418, 418 (1st Dept. 2020).
Lawati v. Montague Morgan Slade Ltd., 102 A.D.3d 427, 428 (1st Dept. 2013) (quoting, Best Cellars, 90 F. Supp. 2d at 446)).
Charles Schwab Corp. v. Bank of Am., 883 F.3d 68, 87 (2d Cir. 2018); see also BHC Interim Funding, L.P. v. Bracewell & Patterson, LLP, 2003 WL 21467544, at *6, 2003 US Dist. LEXIS 10739, at *17 (S.D.N.Y. June 25, 2003).
Schwartz v. Society of the N.Y. Hosp., 199 A.D.2d 129, 130 (1st Dept. 1993).
Callahan v. Gutowski, 111 A.D.2d 464, 465 (3d Dept. 1985).
Slip Op. at *1.
Id.
Id.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.