Opinion
02 Civ. 8726 (LAK)
April 28, 2004
ORDER
Pending before the Court are three motions to dismiss a securities fraud action for lack of personal jurisdiction or, in the alternative, for failure to plead fraud with particularity. The motions were filed on behalf of defendants (1) Wim Langeveld, (2) Hugo Van Neutegem, (3) InterCaribbean Services, Ltd. ("InterCaribbean"), and (4) Citco. Fund Services (Curacao) N.V. ("Citco").
Defendants Neutegem and Citco. filed a joint motion to dismiss.
According to the amended complaint (the "Complaint"), plaintiff ATSI Communications, Inc. ("ATSI") is a Delaware corporation traded on the NASDAQ. Cpt. ¶¶ 1, 79. The Complaint alleges that defendant Samuel Levinson defrauded ATSI into selling convertible preferred securities to The Shaar Fund, Ltd. ("Shaar"), a British Virgin Islands corporation that Levinson supposedly controlled. Id. ¶¶ 2, 44-45, 105. Levinson allegedly induced ATSI to sell the preferred at meetings in New York. Id. ¶ 44. The Complaint alleges that Levinson and the other defendants then manipulated the price of ATSI common stock downward in order to benefit from more favorable rates of conversion of the preferred. Id. ¶¶ 35, 69.
The defendants whose motions are the subject of this order are foreign entities and individuals against whom ATSI has alleged, inter alia, control person liability under Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). Defendants Neutegem and Langeveld are, according to their affidavits, citizens and residents of the Netherlands Antilles. Neutegem Aff. ¶ 2; Langeveld Aff. ¶ 2. It is uncontested that Neutegem and Langeveld worked as managing directors of Shaar Advisory Services N.V. ("Shaar Advisory"), which is a Netherlands Antilles company. See Neutegem Aff. ¶ 3; Langeveld Aff, ¶ 3; Cpt. ¶ 105. The Complaint alleges that Shaar Advisory served both as a signatory for and the "principal advisor" to The Shaar Fund. Cpt. ¶¶ 4, 105. Plaintiff has submitted public filings containing documents that Shaar Advisory signed on behalf of Shaar. Koerner Aff. Exs. B, C, D; Peronti Aff. Ex. 2.
InterCaribbean is a British Virgin Islands company that was either the director or the sole director of Shaar. Fenlon Aff. ¶¶ 2, 6; Cpt. ¶¶ 12, 105. Plaintiff has submitted public filings containing documents that InterCaribbean signed on Shaar's behalf. Peronti Aff. Exs. 3, 5. InterCaribbean asserts that it does not have offices or conduct business in the United States. Fenlon Aff. ¶ 4.
Citco. is a Netherlands Antilles company and is the parent of InterCaribbean. Quilligan Aff. ¶¶ 2, 5; Cpt. ¶ 105. Citco concedes that a "small percentage" of its clients are U.S. entities, but maintains that all of its services are performed in the Netherlands Antilles. Citco Mem. 7-8. Personal Jurisdiction
The Complaint alleges that Citco. can be served at an address in New York City. Cpt. ¶ 13. However, this address appears to be that of Citco. Fund Servces (USA), Inc., a subsidiary of the same entity that is the parent of Citco. See Dell Aff. Ex. B, C; Sheridan Aff. Ex. D. In its opposition to the Citco. motion, plaintiff does not argue that Citco. has offices in New York or that jurisdiction exists on that basis.
On a motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, the plaintiff bears the burden of showing jurisdiction. The standard applicable to plaintiff's burden depends upon the procedural context in which the jurisdictional challenge is raised. Ball v. Metallurgie Hoboken — Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, 498 U.S. 854 (1990).
A district court deciding a Rule 12(b)(2) motion has "considerable procedural leeway." Marine Midland Bank, N. A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). The court "may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion." Id. (citing cases). Where, as here, no discovery has taken place, the plaintiff need only make a prima facie showing of jurisdiction "by pleading in good faith, see Fed.R.Civ.P. 11, legally sufficient allegations of jurisdiction." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998) (quoting Ball, 902 F.2d at 197).
The Exchange Act allows the exercise of personal jurisdiction to the limits of the Due Process Clause of the Fifth Amendment. S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990) (citing Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 998 (2d Cir.), cert. denied, 423 U.S. 1018 (1975)). The due process analysis under the Fifth Amendment looks at the defendant's minimum contacts with the United States as a whole. In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 207 (2d Cir. 2003) (citing Go — Video Inc. v. Akai Elec. Co., 885 F.2d 1406, 1414-15 (9th Cir. 1989)).
Under the minimum contacts analysis, contacts with the forum may confer two types of jurisdiction — specific and general. Metropolitan Life Ins. Co. v. Roberts on — Ceco. Corp., 84 F.3d 560, 567-68 (2d Cir.), cert denied, 519 U.S. 1006(1996). Specific jurisdiction exists when a forum "exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum." Id. (quoting Helicopteros Nationales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 nn. 8-9 (1984)). By comparison, a court's general jurisdiction "is based on the defendant's general business contacts with the forum state and permits a court to exercise its power in a case where the subject matter of the suit is unrelated to those contacts." Metropolitan Life, 84 F.3d at 568 (citing Helicopteros, 466 U.S. at 414-16 nn. 8-9). To establish general jurisdiction, the plaintiff must show that the defendant has "continuous and systematic" contacts within the forum. Id. (quoting Helicopteros, 466 U.S. at 416).
Although the distinction between specific and general jurisdiction originates from a line of cases interpreting the Due Process Clause under the Fourteenth Amendment, the Second Circuit has noted that "the due process analysis is basically the same under both the Fifth and Fourteenth Amendments," the "principal difference [being] that under the Fifth Amendment the court can consider the defendant's contacts throughout the United States, while under the Fourteenth Amendment only the contacts with the forum state may be considered." Chew v. Dietrich, 143 F.3d 24, 28 n. 4 (2d Cir.), cert denied, 525 U.S. 948 (1998) (citing cases); see also In re Magnetic Audiotape, 334 F.3d at 207-08 (using the distinction between specific and general jurisdiction in a due process analysis under the Fifth Amendment).
1. Langeveld and Neutegem
To show specific jurisdiction, plaintiff relies almost entirely on allegations that Langeveld and Neutegem were managing directors of Shaar Advisory and that, in this capacity, they signed documents on behalf of Shaar. See Opp. to Langeveld Motion 8-9; Opp. to Citco. Motion 9-11. It relies upon two public filings, each of which contains a document that either Neutegem or Langeveld signed on behalf of Shaar. Koerner Aff. Ex. C; Peronti Aff. Ex. 2. These documents, however, do not establish specific jurisdiction because they relate to companies and events that are unconnected to this litigation. Nor do they constitute the continuous and systematic contacts that are required to support general jurisdiction.
Failing to show that Langeveld and Neutegem committed acts or caused effects in the United States, plaintiff charges that Langeveld and Neutegem controlled Shaar and that the contacts of Shaar should therefore be imputed to them. See Opp. to Langeveld Motion 6; Opp to Citco. Motion 6. But the allegation that Langeveld and Neutegem controlled Shaar has no factual support. It is based on the flawed assumption that an advisory firm and its directors necessarily control the clients of the firm. Plaintiff's allegation is too conclusory and speculative, even at this preliminary stage, to permit this Court to attribute the contacts of Shaar to Langeveld and Neutegem. See Jazini, 148 F.3d at 185 ("conclusory non — fact — specific jurisdictional allegations" are insufficient to establish a prima facie case that would subject a defendant to jurisdictional discovery). Otherwise, any foreign entity that provides advisory services would be subject to the jurisdiction of the United States based on the contacts of its clients.
The overly simplistic nature of plaintiffs allegations is illustrated by the following faulty deduction: "[Shaar Advisory] is the advisor to Shaar Fund. Langeveld is the managing director of Shaar Advisory. Therefore, Langeveld is a control person of Shaar Fund. Thus, it is not mandatory that Langeveld conduct business himself in the United States." Opp. to Langeveld Motion 6 (citations omitted).
Plaintiff has failed also to make any good faith allegations warranting the exercise of general jurisdiction. According to their affidavits, Langeveld and Neutegem are citizens and residents of the Netherlands Antilles who do not conduct business or own property in the United States. See Neutegem Aff. ¶ 2; Langeveld Aff. ¶ 2. Plaintiff does not contest this, but instead reiterates its argument that the Court should use the contacts of Shaar when analyzing the minimum contacts of Langeveld and Neutegem. See Opp. to Langeveld Motion 6, 9-10; Opp. to Citco. Motion 6, 10-11. This allegation fails for the reasons noted above.
2. InterCaribbean
The jurisdictional allegations against InterCaribbean are equally deficient. Plaintiff relies primarily on allegations that InterCaribbean, a British Virgin Islands company, was either a director or the sole director of Shaar and signed certain documents on its behalf; that InterCaribbean controlled Shaar and, through Shaar, invested in other U.S. companies; and that schemes such as that alleged in the Complaint typically involve the use of offshore accounts. See Cpt. ¶ 105; Opp. to InterCaribbean Motion 7-8, 19-22.
The documents that InterCaribbean signed on behalf of The Shaar Fund do not appear to be related to this action, as they are attached to the public filings of companies unconnected to the litigation. See Peronti Aff. Exs. 3 (public filing for Interactive Flight Technologies, Inc.), 5 (public filing for PHC, Inc.).
These allegations, however, are too sparse to establish a prima facie case of jurisdiction. InterCaribbean's status as the director of a primary violator is not, by itself, sufficient to confer jurisdiction. Cf. Calder v. Jones, 465 U.S. 783, 790 (1984) ("Each defendant's contacts with the forum State must be assessed individually."); Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n. 13 (1984) ("[J]urisdiction over an employee does not automatically follow from jurisdiction over the corporation which employs him. . . .") (citing cases). Moreover, the allegation that InterCaribbean controlled Shaar is nothing more than a restatement of a legal conclusion, which this Court is not bound to accept as true. See Jazini, 148 F.3d at 185 (courts are "not bound to accept as true a legal conclusion couched as a factual allegation") (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
3. Citco
The jurisdictional case against Citco. is even more tenuous than that against InterCaribbean. Plaintiff alleges that jurisdiction exists because Citco. controlled InterCaribbean, which in turn controlled Shaar. See Opp. to Citco. Motion 8-9. This argument fails. Plaintiff not only has failed to establish jurisdiction against InterCaribbean, it has failed to provide facts to support the conclusory allegation that Citco controlled InterCaribbean. Conclusion
The simplicity of plaintiff's allegations is demonstrated by the following line of reasoning: "Shaar Advisory is the advisor to Shaar Fund. Van Neutegem is the managing director of Shaar Advisory. InterCaribbean is the sole director of Shaar Fund and a subsidiary of Citco. Fund Services. It is apparent that Shaar Fund is merely a shell that is wholly controlled by and/or is an alter ego of [Neutegem and Citco. Fund Services] to use in framing investment/financing deals in the United States." Opp. to Citco. Motion 8 (citations omitted).
For the foregoing reasons, the motions to dismiss [docket items 52, 76, 82] are granted for lack of personal jurisdiction pursuant to Rule 12(b)(2), albeit with leave to replead no later than May 17, 2004. Accordingly, the remaining arguments for dismissal of the Complaint are moot. As plaintiff has failed to make a prima facie case of personal jurisdiction, plaintiffs request for jurisdictional discovery is denied. See Jazini, 148 F.3d at 186 (plaintiffs not entitled to jurisdictional discovery unless they make a prima facie case of jurisdiction).
SO ORDERED.
It is ORDERED that counsel to whom this Order is sent is responsible for faxing a copy to all counsel and retaining verification of such in the case file. Do not fax such verification to Chambers.