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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 1, 2018

First Department Reaffirms Doctrine of Personal Jurisdiction Based on Acts of Co-Conspirators

On April 26, 2018, the First Department issued a decision in Wimbledon Financing Master Fund, Ltd. v. Weston Capital Management LLC, 2018 NY Slip Op. 02903, reaffirming the doctrine of personal jurisdiction based on the acts of co-conspirators, explaining:

The Supreme Court properly concluded that defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York. Defendants were directors on Gerova’s board during most of the time when Gerova was involved in a fraudulent scheme. The amended complaint details the conspiracy to commit fraud using Gerova, the agreements between Gerova and Weston board members and insiders, among others, to loot Wimbledon, and Wimbledon’s resulting insolvency. Although defendants did not reside or do business in New York, other Gerova defendants were in New York or interacted regularly with New York, including one of the masterminds of the fraudulent scheme, John Galanis. Regarding their overt acts in furtherance of the conspiracy, defendants’ approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of “hush money” to ignore certain red flags at Gerova, and their failure to correct misrepresentations or disclose material information to the public sufficed at this stage. Although defendants did not mastermind the conspiracy, their receipt of hush money allows the reasonable inference that they exerted control to the extent that the fraud could not have been accomplished without their acquiescence to the proxy and other misconduct.

(Internal quotations and citations omitted).

This decision illustrates an issue that often arises in commercial litigation in New York. Whether the defendant is located on the other side of the world or across the Hudson in New Jersey, a New York court cannot assert jurisdiction over the defendant (that is, hear a case against it) unless there is a proper connection between the defendant and New York. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether there is jurisdiction over you, or over a party with which you are having a dispute, in New York.

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