Opinion
02 Civ. 7446 (HB)
May 31, 2003
OPINION AND ORDER
Defendant, DAP Holdings N.V. ("DAP"), has moved to dismiss AAU's complaint for breach of contract on the grounds of lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2) and, alternatively, forum non conveniens. Jurisdiction is premised on diversity of citizenship. For the following reasons, DAP's motion to dismiss for lack of personal jurisdiction is granted.
I. Background
The plaintiffs are two closely related entities: Associated Aviation Underwriters ("AAU Association") is an unincorporated association of eighteen independent insurance companies that are in the business of providing aviation insurance. Its principal place of business is in New Jersey. All eighteen member companies, which are the risk-bearers, are licensed to conduct insurance business in New York, three of the eighteen member companies are incorporated in New York, and one of these three has its principal place of business in New York. Associated Aviation Underwriters, Inc. ("AAU Inc.") is a Delaware corporation with its principal place of business in New Jersey. See Kelly Aff. ¶ 2. AAU Inc. manages the underwriting and the claims administration for AAU Association. See id. AAU Inc. also serves as the agent and attorney-in-fact of each of the AAU member companies. See id. I will refer to the plaintiffs collectively as as both parties have done. Defendant DAP is a Dutch insurance and reinsurance company whose principal place of business is in the Netherlands.
The three member companies incorporated in New York are Centennial Insurance Company, Sea Insurance Company of America, and Royal and Sun Alliance Personal Insurance Company. New York is the principal place of business of Centennial Jnsurance Company. See Kelly Aff. ¶ 6.
Subsequent to the lawsuit, AAU Inc. changed its name to Global Aerospace, Inc.
DAP and AAU have a long-standing and ongoing relationship that dates back at least to 1977, when they entered into a reinsurance contract entitled the Aviation Domestic Quota Share Contract ("QSC"). See id. ¶ 10. When the QSC was executed, AAU's principal place of business was New York and its offices were in downtown Manhattan; it moved to New Jersey in 1987. See id. ¶ 21. The QSC provided that DAP was subject to the jurisdiction in the United States, that any arbitration would occur in New York, and specifically identified the member companies. See id. ¶ 10. The QSC was not renewed in 1999. See id.
The instant dispute between the parties concerns a Marketing and Administration Agreement ("MAA"), which was executed in November 1999, and was effective as of September 1999. See id. ¶ 11. The MAA is not a reinsurance contract but rather is an agreement that sets forth, in very general terms, the reinsurance limits and other conditions that would apply to those risks presented by AAU which DAP decided to reinsure. DAP has received approximately $5.3 million in premiums from the AAU member companies under policies reinsured pursuant to the MAA.See id. ¶ 13. Many of the aviation insurance policies reinsured pursuant to the MAA were previously reinsured under the QSC. See Kelly Aff. ¶ 11. AAU claims that DAP is obligated under the MAA to substantially increase a letter of credit as security for its potential reinsurance obligations. DAP's letter of credit was required so as to assure AAU member companies remain compliant with state regulations, especially those of the N.Y. Insurance Department. However, there were no contacts with New York at any time in the negotiation, drafting, or execution of the MAA. Instead, all contacts occurred in either New Jersey or the Netherlands. Unlike the QSC, the MAA does not specify the member companies and does not require DAP to submit to jurisdiction in New York.
The MAA is a two-page document that was signed by AAU in Short Hills, New Jersey, on September 28, 1999, and signed by DAP on November 15, 1999, in Amsterdam, the Netherlands. There is also a two-page side letter belonging to and forming part of' the MAA, which was signed by AAU in New Jersey on September 28, 1999, and signed by DAP on November 29, 1999, in Amsterdam. See Kelly Aff. Ex. C. The MAA was terminated as of December 2000. However, certain policies that DAP reinsured pursuant to the MAA included coverage for the airplanes that crashed into the World Trade Center on September 11, 2001, and the airplane that crashed in Far Rockaway, Queens, shortly after takeoff from JFK Airport in November 2001.
II. Discussion
A. Lack of personal jurisdiction
Plaintiff alleges that there is personal jurisdiction over DAP based on N.Y. C.P.L.R. § 302(a) and N.Y. Insurance Law § 1213. DAP contends that New York courts lack personal jurisdiction over it under either provision.
New York's law dictates how this problem must be resolved. See, e.g., DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001). The plaintiff seeks the court's jurisdiction and therefore bears the burden on this issue. See, e.g., id. The Court construes the pleadings and affidavits in the light most favorable to the plaintiff. See, e.g., id. (citing Cutco Indus. Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986)). "Where, as here, a court relies on pleadings and affidavits, rather than conducting a 'full-blown evidentiary hearing,' the plaintiff need only make a prima facie showing that the court possesses personal jurisdiction over the defendant." Id. (citing Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999)).
1. Personal jurisdiction under N.Y. C.P.L.R. § 302(a)
N.Y. CPLR § 302(a)(1) provides New York courts with jurisdiction over "any non-domiciliary . . . [that] transacts any business within the state or contracts anywhere to supply goods or services in the state." To establish jurisdiction under § 302(a)(1), the defendant must transact business in New York and the claim must arise from that business activity. See Cutco Indus., 806 F.2d at 365 (citing McGowan v. Smith, 52 N.Y.2d 268, 272, (1981)); Kreutter v. McFadden Oil, 71 N.Y.2d 460, 467 (1988) ("CPLR 302(a)(1) . . . authorizes the court to exercise jurisdiction over nondomiciliaries for tort and contract claims arising from a defendant's transaction of business in this State . . ., even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted."). DAP contends that there is no personal jurisdiction over DAP here because there are no contacts with New York in connection with the MAA. Specifically, DAP alleges that the MAA was negotiated, drafted, and executed by AAU in New Jersey and by DAP in the Netherlands. Despite the lack of connections with New York, AAU advances four arguments that personal jurisdiction is proper under the transact-business prong of § 302(a). None of these arguments are persuasive.
First, AAU contends that there is personal jurisdiction because the requisite letter of credit satisfied the connection with New York. This argument fails both on the facts and the law. The letter of credit was not issued by a New York bank, as AAU suggests, but rather was processed through the New York branch of a Dutch bank, ABN Amro Bank N.V, en route to AAU in New Jersey. Even if the letter of credit were issued by a New York bank, this would likely be insufficient standing alone to provide personal jurisdiction over DAP here. See Ljungkvist v. Rainey Kelly Campbell Roalfe, No. 01 Civ. 1681, 2001 WL 1254839, *3-*4 (S.D.N.Y. Oct. 19, 2001) (holding that payment made to a New York artist's bank account in New York was insufficient to create personal jurisdiction against a London-based company).
AAU also contends that the letter of credit was created and maintained to keep the member companies compliant with New York regulations and invested pursuant to the guidelines issued by the New York Insurance Department. The letters that AAU cites to indicate DAP's awareness of the New York regulations for maintaining the letter of credit and the investment requirements were sent in 1989 and 1994, during the Quota Share Contract.
Second, AAU contends that New York courts have personal jurisdiction over DAP because of the parties' long-standing relationship where there was a clear connection to New York. Although the four common factors for determining whether DAP transacted business in New York in connection with the QSC are clearly satisfied, the dispositive inquiry here is whether these contacts "bear a substantial relationship to the transaction out of which the instant cause of action arose." McGowan v. Smith, 52 N.Y.2d 268, 272 (1981). "Essential to the maintenance of a suit against a nondomiciliary under CPLR 302(a)(1) is the existence of some articulable nexus between the business transacted and the cause of action sued upon." McGowan, 52 N.Y.2d at 272. Here, the plaintiffs rely on the parties' long-standing and ongoing relationship and the fact that some of the insurance policies reinsured under the QSC are also reinsured under the MAA. This is too slender a reed. See Pompeyo Roa Realuyo v. Diaz, No. 98 Civ. 7684, 2000 U.S. Dist LEXIS 3686, at *19-*20 (S.D.N.Y. Mar. 23, 2000) (holding that New York lacked personal jurisdiction over a Philippine company which, through a director and twenty-percent shareholder (who was a also a defendant), had retained the plaintiff, a New York lawyer, to perform legal services unrelated to the cause of action at bar); see also Pieczenik v. Dyax Corp., 265 F.3d 1329, 1333 (Fed. Cir. 2001) ("The second requirement, the so-called nexus test, is interpreted very narrowly by the New York courts.").
These factors are (1) whether the defendant has an ongoing contractual relationship with a New York corporation; (2) whether the contract was negotiated or executed in New York and whether, after executing a contract with a New York entity, the defendant visited New York for meetings devoted to the contractual relationship; (3) what the choice of law clause (if any) is in the contract; and (4) whether the contract requires defendant to send notices and payments into New York, or subjects defendant to supervision by the plaintiff corporation in New York. See Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 29 (2d Cir. 1996). For example, AAU's offices were in New York City when the QSC was negotiated and executed and for the next 10 years that it was in place. Also, the QSC provided that any dispute resulting in arbitration would occur in New York.
DAP cites Manhattan Life Ins. Co. v. A.J. Stratton Syndicate, 731 F. Supp. 587 (S.D.N.Y. 1990), for the proposition that contacts outside the scope of the contract at issue are irrelevant for determining the existence of personal jurisdiction. This case does not appear to go quite as far as DAP proposes. There the plaintiff argued for personal jurisdiction on the basis of a meeting with the defendant in New York and follow-up letters to that meeting. The court found these insufficient because the plaintiff failed to provide evidence that establish "some substantial or critical relationship to the matters which form the basis for this litigation." A.J. Stratton Syndicate, 731 F. Supp. at 593. The court also noted that "[i]f, on the other hand, the New York meeting concerned matters between defendants and Manhattan Life which are outside the scope of the transaction in question, CPLR § 302(a)(1) jurisdiction would be improper." Id.
In McGowan, the plaintiff was a New York resident injured in Canada by a malfunctioning fondue pot which had been imported from Japan and sold in a store in New York. See id. at 270. The New York Court of Appeals held that it had no personal jurisdiction over the Japanese company that exported the pot, even where its representatives had made several trips into the state to conduct general marketing research. See id. at 273.
Third, AAU maintains that as the agent of the eighteen member companies, AAU was acting on behalf and is now suing on behalf of these member companies, who, as DAP is and was aware, were the risk-bearers and the real parties in interest. Because one of the member companies has its principal place of business in New York and three are incorporated here, DAP is therefore subject to jurisdiction here. Even if AAU is correct that the member companies are the real parties in interest, I rejected a similar argument in Ljungkvist, supra. There, a London-based agent of a New York artist contracted with a London advertising company for the artist's services. The artist's residence in New York was insufficient to give N.Y. personal jurisdiction over the advertising company, even though after the contract was executed, the advertising company contacted the artist in New York. Id. at *3-*4.
DAP contends that AAU acts more as the aviation underwriting department of the member companies than their agent. DAP notes that AAU has authority to bind the member companies and goes into the market without any role by the member companies. According to DAP, the member companies are passive and analogous to shareholders of a corporation.
Fourth, AAU claims that there is personal jurisdiction under the provide-services-to-New York prong, because the events that caused the insurers to accept coverage and seek reimbursement from DAP occurred in New York — and DAP knew of its liability, because it reinsured airlines that continually fly in and out of New York airports. However, "[t]he rule in New York is clear that an indemnity agreement [such as a reinsurance contract] alone does not provide sufficient contact with New York simply because the underlying events that trigger the indemnification occur in New York." See Chase Manhattan Bank v. AXA Reins. UK Plc., No. Civ. 2399, 2002 WL 31690921 (1st Dep't Dec. 3. 2002). AAU contends that Chase is in conflict with the Second Circuit decision in British International Ins. Co. v. Seguros La Republica, S.A., 212 F.3d 138 (2d Cir. 2000). Not so. The excerpt that AAU refers to pertains to whether New York's insurance long-arm statute reaches reinsurers. The Circuit noted that a reinsurance contract is different than a policy or contract of insurance, but found that the New York legislature intended to include reinsurers within the purview of N.Y. Insurance Law § 1213. Unfortunately for the movant, the facts here fail to meet the requirements of the § 1213 test.
The excerpt is as follows:
We agree with the court in Morgan. and those courts adopting its reasoning, that the argument that a reinsurance contract is not a "policy of insurance" or a "contract of insurance" is not sufficient to contravene the express language of § 1101(b)(2). Rather, the express language of § 1101(b)(2) demonstrates that "although the legislature recognized that the business of reinsurance was to be distinguished for some purposes from the business of insurance, . . . it did not intend that unauthorized reinsurers be exempted from New York's long-arm statute and security requirement."British International, 212 F.3d at 141 (citations omitted) (citing Morgan v. American Risk Mgmt. Inc., No. 89 Civ. 2999, 1990 WL 106837, at *6 (S.D.N.Y. July 20, 1990)).
2. Lack of personal jurisdiction under N.Y. Insurance Law § 1213
Section 1213 of the New York Insurance Law permits jurisdiction over an alien insurer or reinsurer that commits any of three specific predicate acts or one general catch-all predicate act. Before filing any pleadings, an alien insurer must deposit a sufficient security, such as cash or a bond, to cover payment of any judgment obtained. See id. § 1213(c)(1); see also Associated Aviation Underwriters v. Arab Insurance Group, No. 02 Civ. 4983, 2003 U.S. Dist. LEXIS 6254, at *5 (S.D.N.Y. Apr. 15, 2003). However, an alien insurer is not required to post this security if it challenges the court's jurisdiction. See Arab Insurance Group, 2003 U.S. Dist. LEXIS 6254, at *5 n. 3. AAU claims that New York has jurisdiction over DAP pursuant to § 1213 because DAP either "issu[ed] or deliver[ed] contracts of [re]insurance to residents of this state or to corporations authorized to do business therein" or conducted "any other transaction of business."
The long-arm provisions of § 1213 apply to reinsurance contracts. See § 1101(b)(2)(G); see also British Int'l Ins. Co. v. Seguros La Republica, S.A., 212 F.3d 138, 141 (2d Cir. 2000) ("'[A]lthough the legislature recognized that the business of reinsurance was to be distinguished for some purposes from the business of insurance, . . . it did not intend that unauthorized reinsurers be exempted from New York's long-arm statute and security requirement.'" (quoting Morgan v. American Risk Mgmt., Inc., No. 89 Civ. 2999, 1990 WL 106837, at *6 (S.D.N.Y. July 20, 1990)).
The provision provides in its entirety:
Any of the following acts in this state, effected by mail or otherwise, by an unauthorized foreign or alien insurer:
(A) the issuance or delivery of contracts of insurance to residents of this state or to corporations authorized to do business therein,
(B) the solicitation of applications for such contracts,
(C) the collection of premiums, membership fees, assessments or other considerations for such contracts, or
(D) any other transaction of business,
is equivalent to and constitutes its appointment of the superintendent, and his successors in office, to be its true and lawful attorney upon whom may be served all lawful process in any proceeding instituted by or on behalf of an insured or beneficiary arising out of any such contract of insurance, and shall signify its agreement that such service of process is of the same legal force and validity as personal service of process in this state upon such insurer.
N.Y. Ins. Law § 1213(b)(1).
Insurance Law § 1213(c)(1) provides:
Before any unauthorized foreign or alien insurer files any pleading in any proceeding against it, it shall either:
(A) deposit with the clerk of the court in which the proceeding is pending, cash or securities or file with such clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure payment of any final judgment which may be rendered in the proceeding, . . . or
(B) procure a license to do an insurance business in this state.
Having concluded that AAU fails to demonstrate that New York has jurisdiction over DAP under § 302(a)(1), to prevail under § 1213 AAU must demonstrate that "any other transaction of business" under § 1213 is broader than § 302(a)(1). Although AAU suggested at oral arguments that § 1213 might be superfluous if it is co-extensive with 302(a)(1), its papers cite a case that suggests they are analogous.See Memo in Opposition to Defendant's Motion to Dismiss at 12 n. 11 (citing Farm Family Mutual Ins. Co. v. Bass, 481 N.Y.S.2d 952, 954 (Sup.Ct. 1984) for the proposition that 1213(b)(1)(D) is analogous to § 302(a)(1)); see also Arab Insurance Group, 2003 U.S. Dist. LEXIS 6254, at *17 (citing Farm Family Mutual).
AAU relies on New Hampshire Insurance Co. v. Sphere Drake Insurance Ltd., 2002 WL 1586962 (S.D.N.Y. Jul. 17, 2002), aff'd in part vacated in part, 51 Fed. Appx. 342 (2d. Cir 2002). However, New Hampshire Insurance is distinguishable. There the plaintiff made out a prima facie case of personal jurisdiction against defendants who reinsured insurance policies issued by plaintiff a Pennsylvania company whose principal place of business was in New York, even though the reinsurance contracts were negotiated, drafted, and executed in London by plaintiff's agent. See New Hampshire Insurance, 2002 WL 1586962, at *1-*3. Like the plaintiff inNew Hampshire Insurance, AAU contends that it is widely known that AAU is not a risk-bearing entity and that it acts as the agent of its member companies. However, two other factors present in New Hampshire Insurance, are not present here: Plaintiff pointed to the facts that the defendant-reinsurers had stamped the policies and that they received additional information that indicated that they were reinsuring the plaintiff, rather than its agent. Id. at *3.
AAU's argument that DAP is subject to jurisdiction in New York because it issued or delivered a contract of reinsurance to resident of New York or a corporation authorized to do business is similarly unavailing. Assuming that AAU is correct that the member companies were the real parties in interest, AAU fails to establish that DAP conducted any act in this state. See Arab Insurance Group, 2003 U.S. Dist. LEXIS 6254, at *10. As Judge Daniels concluded recently:
Thus, the legislature determined that when a policy is "issued or delivered in this state," the insurer is doing business in New York. Simply put, it is the act of issuing or delivering a policy into New York, that constitutes the grounds by which a New York court may assert personal jurisdiction over an unauthorized alien insurer under subsection (b)(1)(A).
Upon reading the statute as a whole, it is clear that merely issuing insurance outside this state to a New York citizen or insuring property that is fortuitously destroyed in New York is not enough. Rather, a defendant must also have purposeful contacts with New York state.Id. at *17 (citation omitted; emphasis in original). As here, the case before Judge Daniels was brought by AAU against a non-domiciliary reinsurer. Also, the litigation was triggered by losses on risks that occurred as a result of the tragic events of September 11, 2001, and the plane crash in Queens in November 12, 2001. See id. at *2-*3. Judge Daniels' conclusion that it would violate constitutional due process to find that New York had jurisdiction over a defendant who had no purposeful contacts with this state applies here as well. See id. at *20.
As a consequence of this decision, it is not necessary to reach the other ground of DAP's motion, namely dismissal based on forum non conveniens.