Press Release With a Worldwide Distribution Insufficient to Confer Personal Jurisdiction Over DefendantPrint Article
- Posted on: May 9 2022
By: Jeffrey M. Haber
Commercial transactions very often involve parties from different states and/or different countries. One party can be domiciled in New York, for example, while the other can be incorporated or headquartered in Delaware or London. When a dispute arises between such geographically diverse parties, questions concerning the jurisdiction of a court over the parties often get litigated. This was the situation in Kingstown Capital Management L.P. v. CPI Property Group, S.A., 2022 N.Y. Slip Op. 03064 (1st Dept. May 5, 2022) (here).
[Ed. Note: the background facts of Kingstown Capital come from the decisions of the motion court (here) and the First Department.]
Kingstown Capital concerned the alleged takeover of nonparty ORCO, a Luxembourg-based real estate development company. In September 2012, plaintiff, an investment advisor, acquired a substantial interest in ORCO. Beginning in the following month, defendant Radovan Vitek, a Czech Republic citizen, who resided in, among other places, the Czech Republic, Switzerland, and the United Kingdom, gained control of more than 90 percent of ORCO through a series of corrupt transactions. Thereafter, Vitek took control of ORCO’s most valuable assets, including certain real estate owned by ORCO’s then-subsidiary, ORCO Germany, now defendant CPI Property Group (“CPIPG”), a company formed under the laws of Luxembourg, and sold the assets at below-market value to entities secretly controlled by him.
Vitek also arranged for the shares in ORCO Germany to be issued for improper purposes, thereby diluting the interests held by Kingstown and others, and forcing them to sell their shares in ORCO at a substantial loss. Through additional corrupt transactions, which involved lying and defrauding his business partners, Vitek seized control of CPIPG and ORCO, and diverted more than a billion dollars in assets to entities he controlled.
In December 2013, a Luxembourg financial regulator launched an investigation into defendants, and on December 8, 2017, concluded that defendants had acted unlawfully. In 2019, the full report detailing its investigation and findings was made public.
On April 10, 2019, plaintiffs commenced an action against defendants in the United States District Court for the Southern District of New York, alleging violations of the Federal Racketeer Influenced and Corrupt Organizations Act and various New York laws. As a result, CPIPG, at Vitek’s direction, published a series of press releases in English on its website and distributed them through a nonparty German newswire service which, according to its website, uses nonparty Bloomberg, based in New York, as an outlet for distributing press releases. The press releases, which were published by Bloomberg, were alleged to include defamatory statements.
Plaintiffs claimed to have been injured “in their trade and community standing” as a result of the press releases. Defendants moved to dismiss pursuant to CPLR §§ 3211(a)(7) (failure to state a claim) and (8) (lack of personal jurisdiction).
Defendants denied that the court had personal jurisdiction over them because they were neither domiciled in New York nor had a physical presence in the state. Defendants maintained, among other things, that: (1) CPIPG is headquartered in and organized under the laws of Luxembourg, that all of its assets are located outside of the United States, and that its shares are traded on the Frankfurt stock exchange; (2) they did not transact or solicit any business in New York; and (3) neither the press release that CPIPG posted on its website in Europe nor the use of a German newswire, which globally distributes its press materials, constitutes a sufficient basis for jurisdiction,1 even if CPIPG intended to have the press releases ultimately reach a New York audience; and (4) any contact with New York bondholders was not directly related to the allegedly defamatory statements, which were a response to the SDNY action.
In response, plaintiffs argued that the court’s personal jurisdiction over defendants was obtained through: (1) their targeted “campaign” of communications toward the New York bond market to solicit investors like plaintiffs; (2) the publication of a series of English-language press releases targeted at New York; and (3) the use of a newswire service that promised to publish the statement with Bloomberg in New York, which they expressly intended would be published in New York. Plaintiff maintained that Defendants’ conduct was a deliberate attempt to reach a New York audience with their communications.
Plaintiffs further maintained that the defamatory statements were used to enhance defendants’ financing efforts targeted at New York, and thus, the defamation arose from defendants’ contact with New York. Plaintiffs denied that the SDNY action constituted the sole basis of defendants’ contact with the State and contended that the dismissal of the SDNY action did not impact the court’s jurisdiction.
To the extent that there was an issue of fact concerning personal jurisdiction, plaintiffs sought jurisdictional discovery, by which they sought the disclosure of communications soliciting and reassuring investors in New York, and evidence of the retention of New York agents, public relations professionals, and legal counsel to draft the press releases and the existence of New York investors in CPIPG.
The motion court granted defendants’ motion to dismiss for lack of personal jurisdiction.
Pursuant to CPLR § 3211(a)(8), a cause of action may be dismissed on the ground that the court lacks personal jurisdiction over the defendant. If jurisdiction is challenged, the plaintiff bears the burden of establishing such jurisdiction over the defendant.2 Jurisdiction is a threshold issue, which must be determined before other defenses in a motion to dismiss.3
The court may exercise personal jurisdiction over a non-domiciliary who, in person or through an agent, transacts business within the state or contracts to supply services in the state. The motion court held that the dissemination of information through a press release was insufficient to confer jurisdiction: “That CPIPG relied on a German newswire to send press releases to Bloomberg in New York with the intention that they would be distributed specifically to a New York audience, even if true, does not constitute transacting business within the state, as the material is accessible to a global audience.”4 Moreover, said the motion court, “the content of the press releases, although concerning New York litigation, [was] not of sole importance to New Yorkers, as allegations of fraud against a Luxembourg company with assets mainly in Europe would likely interest global investors.”
The motion court rejected plaintiffs’ argument that distribution of the press releases in English supported an inference that they were targeted to a New York audience only: “That the press releases were distributed solely in English does not support an inference that they were targeted solely at a New York audience as English is spoken throughout the world.”
The motion court also rejected plaintiffs’ argument that CPIPG’s prior solicitation of investors in New York, as well as the investment in ORCO by Kingstown and other New York entities, sufficed to confer jurisdiction. The motion court reasoned that in both instances, defendants failed to demonstrate that such activities were accompanied by New York-based business transactions.
The motion court further held that the any harm that may have resulted in New York due to defendants’ allegedly defamatory statements was insufficient to confer personal jurisdiction, as “[d]efamation claims are accorded separate treatment to reflect the state’s policy of preventing disproportionate restrictions on freedom of expression” and “cannot form the basis for ‘tortious act’ jurisdiction.”5
Finally, the motion court denied plaintiffs’ request to conduct jurisdictional discovery. The motion court found plaintiffs’ belief that defendants retained agents or other professionals in New York to be “speculative and undermined by their allegations that the press releases were published using a German newswire”. More significantly, the motion court held that because plaintiffs failed offer any affidavits or other evidence supporting their request, they failed to make a “sufficient start” for jurisdictional discovery.6
On appeal, the Appellate Division, First Department affirmed.
The Court held that “[p]laintiffs failed to establish personal jurisdiction over defendants under CPLR 302(a)(1), New York’s long-arm statute, as they did not show that defendants engaged in purposeful activities in New York, conducted or transacted business in this state, or availed themselves of the benefits of New York law.”7
Like the motion court, the Court rejected the dissemination of the press releases by Bloomberg to be sufficient to confer personal jurisdiction over defendants:
What plaintiffs describe as a press “campaign” was a single press release, which was distributed to a German newswire service, DGAP; in turn, DGAP distributed the press release to its 20 or so international outlets, including Bloomberg. Plaintiffs maintain that defendants intended the press release to reach a New York audience because they knew that, by using DGAP to distribute the press releases, Bloomberg would publish the press release in New York County. However, placing allegedly defamatory content on the internet and making it accessible to the public does not constitute the transaction of business in New York, even when it is likely that the material will be read by New Yorkers.8
Further, the Court held that “plaintiffs failed to demonstrate an articulable nexus between defendants’ New York activities and the cause of action for defamation.”9 The Court explained that “[b]eyond an allegation in the federal action that several phone calls and emails were exchanged and a meeting held in New York in anticipation of a deal (which was ultimately consummated in Europe),” there was “nothing in the record” to suggest “that defendants conceived, drafted, published, or distributed the press release in this state.”10
Finally, the Court held that “[d]iscovery on the jurisdictional issue [was] not warranted because plaintiffs failed to make a ‘sufficient start’ in demonstrating the existence of long-arm jurisdiction over defendants.”11
CPLR §§ 302(a)(2) and (3), which permit jurisdiction over tortious acts committed in New York and those committed outside New York that cause injuries in the state, respectively, explicitly exempt causes of action for defamation from their scope. However, when a person makes a defamatory statement without the state that causes injury to the plaintiff within the state, jurisdiction may be acquired under CPLR § 302(a)(1), even though CPLR § 302(a)(3) – which explicitly concerns jurisdiction as to out-of-state tortious acts that cause in-state injury – excludes defamation cases from its scope.
To determine the existence of jurisdiction under CPLR § 302(a)(1), a court must decide (1) whether the defendant “transacts any business” in New York and, if so, (2) whether the cause of action “aris[es] from” such a business transaction.12 “A suit will be deemed to have arisen out of a party’s activities in New York if there is an articulable nexus, or a substantial relationship, between the claim asserted and the actions that occurred in New York.”13
New York courts define “transact[ing] business” as purposeful activity — “‘some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.’”14 New York courts do not interpret “transact[ing] business” to include mere defamatory utterances sent into the state. Although CPLR § 302(a)(1) does not exclude defamation from its coverage, New York courts construe “transacts any business within the state” more narrowly in defamation cases than they do in the context of other sorts of litigation.15 In non-defamation cases, “proof of one transaction,” or a “single act,” “is sufficient to invoke [long-arm] jurisdiction, even though the defendant never enters New York.”16 In defamation cases, however, the “single act” of uttering a defamation, no matter how loudly, is not a “transact[ion of] business” that may provide the foundation for personal jurisdiction.17 “In other words, when the defamatory publication itself constitutes the alleged ‘transact[ion of] business’ for the purposes of section 302(a)(1), more than the distribution of a libelous statement must be made within the state to establish long-arm jurisdiction over the person distributing it.”18
The posting of defamatory material on a website accessible in New York does not, without more, constitute “transact[ing] business” in New York for the purposes of conferring jurisdiction over an out-of-state defendant.19 As the Court held in Kingstown Capital, the same is true with regard to a press release that is transmitted worldwide.
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.
- Defendants further argued that the German newswire, which distributes press releases to nearly 20 global media publishers, not only Bloomberg, and the press releases were republished electronically in every global market.
- Arroyo v. Mountain School, 68 A.D.3d 603 (1st Dept. 2009).
- 342 E. 67 Realty LLC v. Jacobs, 106 A.D.3d 610, 611 (1st Dept. 2013); Howard v. Spitalnik, 68 A.D.2d 803 (1st Dept. 1979).
- Citing, Best Van Lines, Inc. v Walker, 490 F.3d 239, 250 (2d Cir. 2007) (posting of defamatory material on website accessible in New York does not, without more, constitute transacting business in New York for purposes of New York’s long-arm statute).
- Citing, SPCA of Upstate New York, Inc. v. Am. Working Collie Ass’n, 18 N.Y.3d 400, 404 (2012) (citing, CPLR §§ 302(a)(2) and (3)).
- SNS Bank, N. V. v. Citibank, N.A., 7 A.D.3d 352, 354 (1st Dept. 2004); McBride v. KPMG Int’l, 135 A.D.3d 576, 577 (1st Dept. 2016) Warck-Meister v. Diana Lowenstein Fine Arts, 7 A.D.3d 351, 352 (1st Dept. 2004).
- Slip Op. at *1 (citations omitted).
- Slip Op. at *1 (citations omitted).
- Id. (citation omitted).
- Id. (citation omitted).
- Id. at *1-*2 (citing, Concotilli v. Brown, 168 A.D.3d 426, 426 (1st Dept. 2019).
- See Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006).
- Henderson v. INS, 157 F.3d 106, 123 (2d Cir.1998) (internal quotation marks omitted); accord Deutsche Bank, 7 N.Y.3d at 71.
- McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 382 (1967) (quoting, Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
- Best Van Lines, 490 F.3d at 248.
- Deutsche Bank, 7 N.Y.3d at 7 (internal quotation marks omitted).
- Best Van Lines, 490 F.3d at 248.
- Id. at 250.