New York Court of Appeals Addresses Specific Jurisdiction, Holding That Defendant Purposefully Availed Itself of The Protections of New York Law

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Posted on: Feb 15 2023

On February 14, 2023, the New York Court of Appeals decided State of New York v. Vayu, Inc., 2023 N.Y. Slip Op. 00801 (Feb. 14, 2023) (here). Vayu addressed what it means to purposefully avail oneself of the privilege of conducting activities within New York by transacting business in the state. In a 5-1 decision, authored by Judge Michael J. Garcia, the Court held that Vayu, acting through its chief executive officer, repeatedly projected itself into New York over a two-year period through telephone calls and emails that created an ongoing business relationship with a New York State agency and visited New York in furtherance of that agreement. In so holding, the majority rejected the notion that “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”. The reason said the Court is because the courts must examine the nature and quality of the contacts and the relationship established as a result of such contacts.

Judge Jenny Rivera filed a lengthy dissent, stating that she would have affirmed the dismissal of the action on personal jurisdiction grounds. Judge Rivera concluded that the case involved nothing more than “a purchase by telephone and email of a product manufactured outside of New York, designed to specifications serving the needs of non-New Yorkers, and sent directly from the factory floor to Madagascar”. “On these facts”, Judge Rivera said, “defendant did not transact business within New York but merely entered a contract with a New York client for a product sent to and used in another country”.

A Primer on Personal Jurisdiction Under CPLR § 302(a)(1)

CPLR § 302(a)(1) provides for personal jurisdiction over a non-domiciliary who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” To satisfy this rule, a plaintiff must show: (1) the defendant “transacts any business” in the state, or (2) defendant “contracts anywhere to supply goods or services” in the state.¹

The first prong of the rule requires an objective inquiry into whether “[a] non-domiciliary defendant[,] . . . ‘on [its] own initiative[,] . . . project[ed] [itself] into this state to engage in a sustained and substantial transaction of business’”.² “[A] single transaction in New York, out of which the cause of action has arisen, may satisfy the requirement of the transaction of business provision”.³

Significantly, “[t]he primary consideration [under the first prong] is the quality of the non-domiciliary’s New York contacts”.⁴ While a non-domiciliary need not physically “enter[ ] New York”,⁵ its transactions will be deemed sufficiently purposeful only where “[the] defendant, through volitional acts, ‘avails itself of the privilege of conducting activities within the forum [s]tate, thus invoking the benefits and protections of its laws’”.⁶ “[P]urposeful availment occurs when the non-domiciliary ‘seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship’” with a New York-based party.⁷ Notably, “the nature and purpose of a solitary business meeting conducted for a single day in New York may supply the minimum contacts necessary to subject a nonresident participant to the jurisdiction of [New York] courts”.⁸ “[A]lthough determining what facts constitute ‘purposeful availment’ is an objective inquiry, it always requires a court to closely examine the defendant’s contacts for their quality”.⁹

In addition to satisfying the requirements of CPLR § 302(a)(1), the plaintiff must establish that the “[e]xercise of personal jurisdiction under the long-arm statute … comport[s] with federal constitutional due process requirements”.¹⁰ The Court of Appeals has adopted a two-pronged analysis under the federal constitutional standard:

Federal due process requires first that a defendant have minimum contacts with the forum state such that the defendant should reasonably anticipate being haled into court there, and second, that the prospect of having to defend a suit in New York comports with traditional notions of fair play and substantial justice.¹¹

Under the “minimum contacts” analysis, the court evaluates whether a defendant has purposefully availed itself of the privilege of conducting business within New York.¹² “The contacts must be the defendant’s own choice and not ‘random, isolated, or fortuitous’”.¹³ Moreover, “it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over [it]”; “a defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction”.¹⁴

“The ultimate burden of proving a basis for personal jurisdiction rests with the party asserting jurisdiction.”¹⁵ Thus, where a defendant, as in Vayu, moves to dismiss an action for lack of personal jurisdiction pursuant to CPLR § 3211(a)(8), “the plaintiff must come forward with sufficient evidence, through affidavits and relevant documents, to prove the existence of jurisdiction”.¹⁶

State of New York v Vayu, Inc.

Vayu, Inc. is a Delaware corporation that is headquartered in Michigan. It designs and manufactures unmanned aerial vehicles (also known as “drones”). Vayu sold two UAVs to the State University of New York at Stony Brook (“SUNY Stoney Brook”) for delivery in Madagascar. Following a dispute regarding the operability of the UAVs, plaintiff commenced the action on behalf of SUNY Stony Brook, asserting, among other claims, breach of contract.

In 2013, Vayu’s Chief Executive Officer, Daniel Pepper (“Pepper”), contacted Dr. Peter Small (“Small”), who was not yet affiliated with SUNY Stony Brook, about using UAVs to transport laboratory samples. It is unclear whether Small was in New York at the time. Two years later, in 2015, while working as a professor of medicine and director of the Global Health Institute at SUNY Stony Brook, Small contacted Pepper seeking a business relationship between Vayu and SUNY Stony Brook for the development and use of UAVs to deliver medical supplies to remote areas in underdeveloped countries. From 2015 through 2017, Pepper communicated with Small and other representatives of SUNY Stony Brook through telephone calls to SUNY Stony Brook phone numbers, emails to SUNY Stony Brook email addresses, and later through a face-to-face meeting in New York. These discussions concerned both the development of UAVs to be sold to SUNY Stony Brook, as well as broader partnership opportunities. In the summer of 2016, Vayu and SUNY Stony Brook worked together to submit a grant application to the United States Agency for International Development (“USAID”), in which Vayu described SUNY Stony Brook as a “partner” and identified Small as a key member of its “team”. The submission also outlined a two-year budget with SUNY Stony Brook receiving approximately $85,000 per year for costs such as travel, stipends, and technical support as part of an effort to supply 10 UAVs to Madagascar. USAID ultimately approved the grant proposal that included these representations.

In September 2016, SUNY Stony Brook purchased two UAVs from Vayu for $25,000 each. Vayu sent an invoice to SUNY Stony Brook at a post office box located in New York, and Vayu accepted a wire payment from SUNY Stony Brook that originated in New York. Attached to the invoice was a note from a Vayu employee stating “[w]e can discuss down the line whether [Small] would like these shipped to NY, or on [SUNY Stony Brook’s] behalf to Madagascar”. The drones were later shipped directly to Madagascar from Michigan.

By November 2016, problems arose with the operation of the two UAVs. Vayu employees and SUNY Stony Brook representatives attempted to resolve the issues by telephone and email, and in September 2017, Pepper offered to meet Small in New York. At that meeting, Pepper and Small agreed to terms for moving forward, which were memorialized via email: SUNY Stony Brook would bear the cost of shipping the UAVs from Madagascar to Michigan; Vayu would provide replacement UAVs that met SUNY Stony Brook’s specifications; and Vayu would train one of SUNY Stony Brook’s employees to operate the UAVs. The parties also discussed an ongoing business relationship and future opportunities between Vayu and SUNY Stony Brook. In November 2017, SUNY Stony Brook returned the two UAVs to Vayu in Michigan. Vayu failed to replace them or provide a refund.

The Court held that the foregoing facts demonstrated “a clear intent by Vayu to engage purposefully in business activities within the meaning of CPLR 302 (a) (1)”. The Court explained that “[f]or two years, Vayu projected itself into the State via calls and emails with Small and others at SUNY Stony Brook that resulted in the sale of two UAVs”. The Court found that the “content of the communications … show[ed] that Vayu purposefully sought to establish a substantial ongoing business relationship with SUNY Stony Brook.” The Court noted that “[l]ong-arm jurisdiction is appropriately exercised over commercial actors who have, as Vayu did here, us[ed] electronic and telephonic means to project themselves into New York to conduct business transactions” (internal quotation marks omitted). The Court further noted that “although being physically present in New York is not required, the fact that Pepper traveled to New York to meet with Small in furtherance of the ongoing business relationship [was] significant”.

The Court found that the communications in Vayu went beyond the sale of the two drones; they evinced “a continuing business relationship between Vayu and SUNY Stony Brook”. The Court rejected the notion that the case was similar to those where the plaintiff responded to a “passive website[]”, explaining that the interactions “involved an active dialogue between principals based on earlier personal contact”.

Importantly, the Court rejected the argument that a defendant’s initiation of contact with New York is the determinative factor, stating “although a defendant’s initiation of contact with New York is a relevant factor in the purposeful availment analysis, it is not determinative”.

Speaking to the dissent, the Court found that the arrangement between the parties was more than a unilateral plan that was conceived by Small. The Court noted that the email communications between the parties made it clear “that Pepper reached out to Small in December 2013 to discuss “the idea to use drones to transport lab samples”. “According to Pepper, that idea was ‘a shared vision’ between the two, specifically for ‘an affordable and autonomous, long-range . . . delivery drone that can address the needs of “last mile” rural healthcare delivery.’” The Court found that the sale of the drones to SUNY Stony Brook for use in Madagascar furthered that shared vision.

In sum, as to the first prong of CPLR § 302(a)(1), the Court found that the interactions with New York exceeded the bare minimum.

The parties had a two-year business relationship when the principals met—at Pepper’s request—in New York in 2017. In the weeks that followed, the parties exchanged emails and calls, including an email from Pepper to Small memorializing the modified terms of the agreement with an assurance that “above all else, we want to figure out a solution and work together.” The meeting in New York, and the follow up communications, “designedly and materially forwarded the negotiation and performance of the contract for sale” of the UAVs (Dulman v Potomac Baking Co., 85 AD2d 676, 677 [2d Dept 1981]).

Regarding the second prong of CPLR § 302(a)(1), requiring the cause of action to arise from a defendant’s relevant business transaction in the state, the Court held that plaintiff easily met it.

Plaintiff’s claims are based on the sale of the two UAVs, and Vayu’s contacts in New York were directly related to efforts to resolve the dispute over operability of the purchased UAVs. Thus, “[t]here is an articulable nexus or substantial relationship between defendant’s New York activities and the parties’ contract, defendant’s alleged breach thereof, and potential damages.” [Citations omitted.]

Finally, the Court held that the exercise of personal jurisdiction over Vayu satisfied constitutional due process. The Court found that “Vayu sought, negotiated, and then entered a contractual relationship with a New York State entity”. “Vayu furthered that relationship”, said the Court, “through numerous telephonic and email communications with SUNY Stony Brook and continued negotiations over terms of the deal when Vayu’s CEO visited New York and met with Small in 2017”. Moreover, noted the Court, “Vayu’s 2016 grant application to USAID, describing SUNY Stony Brook as a ‘partner’ and projecting a two-year budget for SUNY Stony Brook’s costs related to delivery of an additional 10 UAVs, further demonstrate[d] Vayu’s understanding of this relationship with SUNY Stony Brook as ongoing and connected to New York”. Under such circumstances, concluded the Court, “Vayu should reasonably have anticipated being haled into court here”.

Addressing the dissent, the Court argued that it misconstrued the nature of the agreement between the parties, noting that there were “voluminous contacts between Vayu and SUNY Stony Brook over a two-year period” and that such contacts “were not merely ‘responsive in nature’, but rather ongoing negotiations over the original terms and subsequent modification of a contractual relationship”.

The Court said that the dissent also mischaracterized the meeting in New York, which was not simply to ‘assuage’ concerns, but to modify the terms of their agreement and discuss ongoing collaboration. In fact, noted the Court, the new terms agreed upon were at issue in the lawsuit.

“Likewise”, said the Court, “the [dissent’s] refrain that the drones, which were intended for use in SUNY Stony Brook’s initiative to provide health solutions in developing countries, were for the ‘benefit and use of [Madagascar’s] people’, confuse[d] the concept of potential third-party beneficiaries of a commercial agreement with the long-arm jurisdictional inquiry into defendant’s activities in New York”. The fact that persons located in remote areas of Madagascar might benefit from delivery of much-needed medical supplies by SUNY Stony Brook’s drones, noted the Court, did not mean that SUNY Stony Brook itself would reap no benefit from the success of the program. The school could find success in an “enhanced … reputation” and an expanded “program to service other populations in need”.

The dissent found that the lower court had no jurisdiction over Vayu. Judge Rivera argued that the parties’ discussions about, and preliminary steps toward, establishing a potential but unconsummated future business relationship was insufficient to satisfy CPLR § 302(a)(1). Judge Rivera explained that the lawsuit was based on a contract formed outside of New York for products manufactured in Michigan and sent directly to Madagascar for the benefit and use of its people. “This section of our long arm statute”, said Judge Rivera, “applies to those who transact business within New York and not to those, like defendant, who happen to conduct some business with a party located in New York”.

Judge Rivera argued that by its holding, the majority “adopt[ed] an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”.

Takeaway

As noted, Judge Rivera argued that the majority “adopt[ed] an overly broad reading and unconstitutional extension of CPLR 302 (a) (1)”. Time will tell whether that assessment is accurate.

However, in analyzing the facts and the law, it is hard to overlook some of the objections Judge Rivera had to the majority’s decision.

For example, the first prong of the rule requires an inquiry into whether the non-domiciliary projects itself into the state on its own initiative to engage in the transaction of business. Purposeful availment occurs when the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship with a New York-based party. The facts of Vayu show that it was plaintiff’s action that were the impetus for the transaction between SUNY Stony Brook and Vayu. As Judge Rivera noted, “[a] plaintiff’s actions cannot serve as the basis for personal jurisdiction over a defendant who merely responds to a business opportunity through common email and telephone communications”. The majority opinion gives little, if any, weight to this principle.

Moreover, as Judge Rivera noted, Pepper’s visit to New York was part of an attempt to address complaints about performance of the drones that arose after the contract had been entered – that is, after the transaction had been completed. Indeed, the failure to perform was the crux of plaintiff’s breach of contract claim. Pepper did not enter New York to transact new business with the university or to modify the agreement.

Further, all business between Vayu and SUNY Stony Brook was conducted remotely. As Judge Rivera explained, both parties entered into an agreement with the understanding that they could perform their contractual obligations without Vayu or its drones entering New York.

Finally, the negotiation between a non-domiciliary and a New York resident to create an ongoing business relationship is not typically sufficient to support a claim of personal jurisdiction when the negotiation is based on a previous transaction. As Judge Rivera noted, “[n]o communications on this subject occurred in New York or led to the formation of a contract in New York. As they did during the original transaction, the parties contemplated engaging in a business relationship focused on public health issues in Madagascar and other foreign nations”.

Footnotes

D & R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292, 297 (2017) (quoting, CPLR § 302(a)(1)).
Id. at 298 (quoting, Paterno v. Laser Spine Inst., 24 N.Y.3d 370, 377 (2014)).
Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 456 (1965).
D & R Global, 29 N.Y.3d at 298 (citing, Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007)).
Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988).
Fischbarg, 9 N.Y.3d at 380 (quoting, McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 382 (1967)).
D & R Global, 29 N.Y.3d at 298 (quoting, Paterno, 24 N.Y.3d at 377).
Presidential Realty Corp. v. Michael Sq. W., Ltd., 44 N.Y.2d 672, 673 (1978).
Licci v. Lebanese Can. Bank, SAL, 20 N.Y.3d 327, 338 (2012).
Rushaid v. Pictet & Cie, 28 N.Y.3d 316, 330 (2016) (citing, LaMarca v. Pak-Mor Mfg. Co., 95 N.Y.2d 210, 216 (2000)).
D & R Global, 29 N.Y.3d at 300 (cleaned up).
Id.; Rushaid, 29 N.Y.3d at 331; LaMarca, 95 N.Y.2d at 217.
Ford Motor Co. v. Montana Eighth Judicial Dist. Ct., 141 S.Ct. 1017, 1025 (2021) (quoting, Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774 (1984)).
Walden v. Fiore, 571 U.S. 277, 285-286 (2014).
Fanelli v. Latman, 202 A.D.3d 758, 759 (2d Dept. 2022) (citing, Fischbarg, 9 N.Y.3d 375, 381 n.5, and Aybar v. Aybar, 169 A.D.3d 137, 142 (2d Dept. 2019), aff’d, 37 N.Y.3d 274 (2021)).
Fischbarg, 9 N.Y.3d at 381 n.5 (internal quotation marks omitted) (quoting, Vincent C. Alexander, Prac. Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C302:5).

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.