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Court Holds That A Stockholder of A Canadian Corporation Failed to Demonstrate Specific Jurisdiction Sufficient to Challenge a Merger and Acquisition

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  • Posted on: May 20 2019

Obtaining jurisdiction over a corporation that is incorporated and headquartered outside of the state can be difficult. A plaintiff must plead and prove that the corporation purposefully availed itself of the resources of the state for a court to exercise personal jurisdiction over the defendants. The failure to do so, as in Poms v. Dominion Diamond Corp., Index No. 655733/2017, 2019 NY Slip Op 31364(U) (Sup. Ct. N.Y. County May 15, 2019) (here), will result in dismissal of the action.

Poms v. Dominion Diamond Corp.


Poms was a putative class action brought by Nadav Poms (“POMS”), on his own behalf and on behalf of the common stock holders of Dominion Diamond Corporation (“Dominion” or the “Company”), for negligent misrepresentation, breach of fiduciary duty and quasi-appraisal in connection with the proposed acquisition of Dominion by the Washington Companies (the “Proposed Transaction”).

On July 15, 2017, Dominion’s Board of Directors approved a definitive arrangement agreement (the “Arrangement Agreement”) with Northwest Acquisitions ULC, an affiliate of the Washington Companies, pursuant to which each share of Dominion’s common stock would be converted into the right to receive $14.25 per share in cash. To enable Dominion’s stockholders to vote in favor of the Proposed Transaction, Dominion’s Board authorized the filing of an Information Circular (the “Circular”) with the Securities and Exchange Commission. The Circular was also mailed to Dominion’s shareholders.

Poms alleged that the Circular violated New York and Canadian law because it contained incomplete and materially misleading information regarding: (i) the process leading to the Proposed Transaction; (ii) the financial analyses conducted by Dominion’s financial advisors, TD Securities Inc. (“TD Securities”) and Morgan Stanley Canada Limited (“Morgan Stanley”), in connection with the Proposed Transaction; and (iii) the projections relied upon by TD Securities and Morgan Stanley in performing their valuation analyses.

Defendants argued that because Dominion is a “foreign private issuer’ under the U.S. Securities laws, it was exempt from complying with Section 14(a) of the Securities Exchange Act of 1934, which concerns an issuer’s obligations to file a proxy statement in connection with a proposed merger or acquisition and the contents thereof. Defendants further maintained that Dominion was required to follow the specific proxy rules applicable under the Canada Business Corporations Act (“CBCA”) and the applicable Canadian Securities law. According to Defendants, Dominion provided all required information required by the applicable Canadian law about the Proposed Transaction.

Pursuant to the CBCA, a hearing was held before the Ontario Superior Court of Justice (the “Ontario Court”) regarding the merger. Poms did not raise any objection or oppose the merger in Canada, but instead commenced the New York action.

The Dominion shareholders voted in favor of the transaction and the Ontario Court entered a final order approving the transaction as “fair and reasonable.”

At the final hearing on September 22, 2017, the Ontario Court noted that “no Dominion shareholders have delivered responding materials to indicate an intention to oppose court approval of the arrangement, as permitted by paragraphs 26 and 27 of the interim order” and that “Mr. Poms has, through counsel advised that he does not oppose the order sought, but he intends to pursue the litigation that he commenced in the State of New York for damages, and if the State of New York is later found to be forum non-convenien[s], that he intends to pursue his claim for damages in Ontario. Mr. Poms has not exercised rights as a dissenting shareholder.”

After the Ontario Court issued its final order, Poms amended his complaint in the New York action. Defendants moved to dismiss the amended compliant on several grounds: (i) the Court lacked either general or specific personal jurisdiction over either Dominion or the Director Defendants; (ii) Plaintiff’s claims concerning the Circular described a Canadian transaction with no connection to New York and should be dismissed on the grounds of forum non-conveniens; (iii) international comity, res judicata or collateral estoppel applied because the Ontario Court had already ruled that the transaction was “fair and reasonable”; (iv) the Securities Litigation Uniform Standards Act of 1998 precluded state law claims seeking damages on behalf of a class that alleged misrepresentations or omissions of material facts in connection with the purchase or sale of securities listed on a national exchange; (v) Plaintiff’s claim for negligent misrepresentation failed to state a claim; and (vi) Plaintiff’s claim for ‘quasi appraisal’ failed because quasi-appraisal is a remedy rather than a cause of action and Poms failed to advance any underlying cause of action that provided a basis for a quasi-appraisal remedy.

The Court granted the motion.

The Court’s Decision

In granting the motion, the Court addressed the first basis for dismissal – the court lacked general and specific personal jurisdiction.

As to general jurisdiction, the Court held that it did not possess jurisdiction over the Defendants because they were not at home in the state. In this regard, the Court observed: “Dominion is a Canadian corporation with its head and principal place of business in Calgary, Canada. Its registered office is located in Toronto, Canada and it does not conduct any business in New York. The Directors Defendants reside in Canada and/or the United Kingdom and have no connection to New York.” Slip Op. at *5, n.3. Moreover, Poms did “not assert any basis for New York to exercise general jurisdiction over Defendants….” Id.

Regarding specific jurisdiction, the Court held that it did not have such jurisdiction. Specifically, the Court held that under CPLR 302(a)(l), there was no transaction within the state and no relationship between the transaction at issue and the claims asserted sufficient to exercise jurisdiction over the Defendants. Coast to Coast Energy, Inc. v. Gasarch, 149 A.D.3d 485, 486 (1st Dept. 2017) (internal citation and quotation marks omitted).

The Court rejected Poms’ argument that it had jurisdiction over the Defendants because Dominion’s common stock was traded on the New York Stock Exchange and each of the Director Defendants had sufficient contacts with New York as a director/officer of a company whose common stock was traded on the New York Stock Exchange. Slip Op. at *5. The Court held that the mere listing of shares on the New York Stock Exchange does not confer jurisdiction over out-of-state defendants with no other contacts within the state: “However, it has been long held that a corporation is not doing business in New York for the purposes of conferring jurisdiction merely because its shares are listed on a New York Stock Exchange.” Id. at *6 (citations omitted).

Next, the Court rejected Poms’ argument that the Court possessed jurisdiction over the Defendants because the Arrangement Agreement selected New York as the forum in which to litigate claims relating to the debt financing of the Proposed Transaction. Id. The Court explained that Poms overstated the reach of the forum selection clause in the agreement. In fact, noted the Court, under the agreement, “only [claims] related to debt-financing source and nothing more” could be litigated in New York. (Orig’l emphasis.) Thus, “[b]ecause debt financing is not at all related to the causes of action alleged by Poms – which concern[ed] the sufficiency and accuracy of disclosures made in connection with the Proposed Transaction, Poms ha[d] not shown a substantial relationship between the debt financing and the cause of action pled to confer jurisdiction over the Defendants pursuant to the forum selection clause.” Id. at **6-7.

The Court also rejected Poms’ argument that the Court had jurisdiction over the Defendants because the proxy solicitation firm (Kingsdale Advisors, a Canadian proxy solicitation agent) hired to solicit proxies had an office in New York. Id. at *7. “The fact that Defendants retained a Canadian proxy solicitation agent, which has an office in New York is not sufficient, in and of itself, to show that Defendants have subjected themselves to jurisdiction here.” Id. The Court explained that “Poms fail[ed] to plead facts sufficient to demonstrate that simply by appointing Kingsdale Advisors as the proxy solicitation agents, Defendants transacted business in New York.” Id. “In addition,” said the Court, “Poms ha[d] failed to plead facts to show that his claims arose out of the appointment of a proxy solicitation agent.” Id.

Finally, the Court rejected Poms’ argument “that New York courts may exercise specific jurisdiction [in the action] because the Defendants purposefully availed themselves of the resources of New York by retaining Paul Weiss, a law firm headquartered in New York, as their legal counsel in connection with the Proposed Transaction.” In doing so, the Court explained that “Defendants here concluded the Arrangement Agreement in Canada with no connection to New York. Although the Defendants consulted Paul Weiss’s Toronto and New York offices, including some New York based attorneys, the center of gravity for the Proposed Transaction was in Canada with a very remote, if any, contact in New York.” Id. at **8-9.

“Moreover,” observed the Court, “a foreign entity hiring a law firm, which has a presence in New York, but without a substantial connection between the law firm’s engagement and the subject matter of the litigation, has been held an insufficient basis to confer New York jurisdiction over the foreign entity.” Id. at *9 (citations omitted).

The Court found confirmation in Bristol-Meyers Squibb Co. v. Supreior Court of California, 137 S.Ct. 1773 (2017), in which the Supreme Court held that “[i]n order for a court to exercise specific jurisdiction over a claim, there must be an affiliation between the forum and the underlying controversy, principally, an activity or an occurrence that takes place in the forum State.” Id. at 1781 (internal quotation marks and brackets in original omitted), citing Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011). “When there is no such connection, specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.” Id. at 1781.

In light of the foregoing, the Court held that “the fact that Defendants consulted attorneys who have an office in New York about a Canadian Proposed Transaction (and some New York based attorneys may have even been consulted about the Canadian Proposed Transaction) without more, does not supply the required link between Defendants New York presence and the subject matter of the litigation.” Slip Op. at *10.

In sum, the Court found that Poms did nothing more than try to “manufacture specific jurisdiction” through “a few, detached connections between Defendants and New York.” Id.

Instead Poms lists a few, detached connections between Defendants and New York in an attempt to manufacture specific jurisdiction. These connections, however, are not substantially related to his claim – that disclosures concerning the proposed acquisition in Canada of a Canadian company by an affiliate of a Montana company were inadequate and/or misleading. Poms list of unconnected relationships between New York and his claims concerning the Proposed Transaction in Canada are at best tangential and insufficient to show the required “affiliation between the forum and the underlying controversy” for New York to exert specific jurisdiction over this proposed class action litigation.

 Id., citing Bristol-Meyers Squibb, 137 S.Ct. at 1781.


Poms is a good example of a court looking at the totality of the contacts with the state to determine whether a defendant has “on his or her own initiative project[ed] himself of herself into th[e] state to engage in a sustained and substantial transaction of business.” Berkshire Capital Group, LLC v. Palmet Ventures, LLC, 307 Fed. App’x. 479, 481 (2d Cir.2008) (Internal quotations and citation omitted)). Thus, where, as in Poms, the transaction occurred “entirely outside of New York” “[t]he mere fact that [the Defendants] engaged in some contact with a [non-party in] New York does not mean that [the Defendants] transacted business in New York.” Id.

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