Opinion
No. 651248/2011.
2012-05-21
SINO CLEAN ENERGY INC., Plaintiff, v. Alfred LITTLE, Seeking Alpha, Ltd., Geoinvesting, LLC and John Does1–10, Defendants.
Loeb & Loeb LLP, New York, for Plaintiff. Eaton & Van Winkle LLP by Joseph Thomas Johnson, New York, for Defendant Alfred Little.
Loeb & Loeb LLP, New York, for Plaintiff. Eaton & Van Winkle LLP by Joseph Thomas Johnson, New York, for Defendant Alfred Little.
Drinker Biddle & Reath LLP by Clay J. Pierce, New York, for Defendant Geoinvesting LLC.
CAROL R. EDMEAD, J.
This case is one of the several pending defamation actions by various companies doing business in China against an internet blogger under the pseudonym Alfred Little, alleged to have profited from the “short sale”
A “short sale” transaction proceeds as follows: “The short seller identifies securities she believes will drop in market price, borrows these securities from a broker (prime brokers have the greatest market share), sells the borrowed securities on the open market, purchases replacement securities on the open market, and returns them to the broker—thereby closing the short seller's position. The short seller's profit (if any) is the difference between the market price at which she sold the borrowed securities and the market price at which she purchased the replacement securities, less borrowing fees, brokerage fees, interest, and any other charges levied by the broker (Electronic Trading Group, LLC v. Banc of America Securities LLC, 588 F.3d 128, 132 [2d Cir.2009] ).
In the instant action, defendant Alfred Little (“Little”) appearing pseudonymously, and believed to be a pseudonym for one or more persons, moves to dismiss the complaint by plaintiff Sino Clean Energy Inc. (“Sino”) as asserted against him, pursuant to CPLR 3211(a)(8) for lack of personal jurisdiction.
The branch of Little's motion to appear and/or proceed anonymously has been withdrawn. According to counsel for Alfred Little, “Alfred Little” is Jon Carnes.
Factual Background
Sino, a Nevada alternative fuel company with a principal place of business in China, alleges that Little authored and posted three defamatory reports on his own ( www.alfredlittle.com ) and other websites. It is alleged that beginning on April 28, 2011, a group of short sellers of Sino's stock, including Little individually or in concert, manipulated the public market of Sino stock for personal gain at the expense of Sino shareholders, by publishing on the internet a series of false reports portraying Sino as fraudulent. As a result, Sino stock sharply declined, allowing Little and other short sellers, to cover their short positions at the depressed price and make substantial profits. It is further alleged that the short sellers' short positions are “naked,” meaning that the short sellers have not actually borrowed the shares before selling them, which is a red flag of a corrupt arrangement among short sellers, as it indicates that the short sellers know that the price of the stock will go down.
Little's reports state that Sino's SEC filings are materially false and misleading, that Sino made material misrepresentations of fact to investors, and that the company is a sham and a fraud. Specifically, Little's April 28, 2011 report, entitled “Sino Clean Energy Is a Complete Hoax and its Shares are Worthless” (the “April 28 Report”), falsely stated that the production operations at Sino's facilities in China are unprofitable and are much lower than reported; and that during the 2010 investors' tour of the Tongchuan facility, Sino staged phony production activities to give the appearance of business activity. The April 28 report also states that Little “[t]oday ... lives in Shanghai and spends his time researching Chinese and other high growth companies,” and “now shares all his investing ideas in his financial blog Little Al's Big Emerging Market Picks'.” Little subsequently published another defamatory article on May 2, 2011 entitled “Sino Clean Energy's $20 Million Chinese Ponzi Share Scheme” (the “May 2 Report”) concerning the sales of stock in the company prior to Sino's initial public offering.
On May 3, 2011, Sino published a response rejecting the allegations in these reports. Between the open of the market on April 25 and the close on May 6, 2011, Sino's stock dropped approximately 50%.
Sino further alleges that in addition to the above reports, on May 11, 2011 Little sent defamatory emails directly to Sino's auditors, Bruce Weinberg and Jim Tokryman of Weinberg & Company, P.A. (“Weinberg”), and to one of Sino's Board of Directors, Joseph Levinson. After Levinson resigned from Sino, on May 20, 2011, Little sent an email to Jim Tokryman advising his firm to “do the same.” Sino alleges that these emails were designed to interfere with Sino's business relationships with Weinberg and Levinson.
Consequently, Sino commenced this action on May 9, 2011, against, inter alia, Little, alleging fraud, defamation (libel per se ) and tortious interference with business relationship.
In his motion, Little argues that the complaint against him should be dismissed for lack of personal jurisdiction over “the individual identified as Mr. Little,” either based on residency or domicile pursuant to CPLR 301 because he was not a resident or a domiciliary of New York when this action was commenced. His permanent residence is outside the United States and he has not visited New York in the last 12 months. Sino's allegations with respect to jurisdiction are conclusory as they are asserted “upon information and belief.”
Likewise, Little is not subject to specific jurisdiction under CPLR 302(a)(1). The prospect of Little defending a suit in New York does not “comport with traditional notions of fair play and substantial justice.” Little further argues that at the time of the alleged publications, the websites were used and maintained by a non-New York resident. Sino's claim did not arise from a transaction of business within the state and Little did not purposefully avail himself of the privileges of the state. Furthermore, defamation claims are narrowly construed within the context of CPLR 302(a)(1).
Neither can jurisdiction be exercised over Little under CPLR 302(a)(2). As Little was not physically present in the state at the time of the subject events, he did not commit any tortious acts within the state. And, defamation claims are excluded from CPLR 302(a)(2) and (a)(3).
These constitutional protections equally apply to internet speech and Sino cannot avoid jurisdictional limitations on defamation claims by recasting such claims into claims for fraud and tortious interference. And, such alternate theories of liability of fraud and tortious interference cannot support long arm jurisdiction.
In opposition, Sino argues that the court can exercise jurisdiction over Little based on CPLR 301 and 302. Little admitted on his website and on LinkedIn that he resides in New York. Further, in three separate “reports” published between March 9, 2011 and March 18, 2011 about another company Deer Consumer Products, the shares of which Little “traded” in a short sale transaction, Little claimed that “he lives in New York.”
Further, jurisdiction pursuant to CPLR 301 may be based on Little's business activities in New York, i.e., maintenance of the interactive website, short selling activities of Sino shares, and purchases of publication services from the New York-based media company PR Newswire.
Through his interactive website, Little actively solicits discussions with the users and readers of the website, through the commentary feature and an email subscription service. There is a link entitled “Contribute” on the homepage, which requests submissions to Alfred Little.com; and certain links allow users to download reports and other files directly to their computers.
Further, Little short sells stock through the use of New York financial institutions, such as the Depository Trust and Clearing Company (“DTCC”), located in New York. In order to locate and borrow shares, Little's broker needs to contact “other brokers,” and jurisdictional discovery will show a number of New York brokerage houses whose clients own Sino stock.
Sino also contends that Little paid significant fees to New York-based PR Newswire to publish his reports and facilitate his short sales. PR Newswire publishes press releases on the internet and describes itself as the “global leader in news and information distribution services for professional communicators.” For example, in March 2011, before Little's attack against Sino, Little paid PR Newswire approximately $1,105 to publish a letter to the board of directors of another victim of Little's short seller attacks, China Integrated Energy, Inc.
Sino also argues that it is “highly probable” that Little employed DTCC's services in order to borrow Sino stock, and thus, Little's transactions of short sales through the use of New York-based brokerage houses and DTCC and its subsidiaries constitute the requisite purposeful availment of the services in New York. The DTCC provides both the most prominent depository and custody services in the country and runs the largest securities clearance and settlement service in the world. When the trade is done, it settles through DTCC or its subsidiary, and it is impossible that Little could borrow the shares he is legally required to borrow in covering his positions and clear his sales and covering purchases without using DTCC's services extensively. And, many of these brokerage houses used in the short sale process, such as Merrill Lynch, are located in New York. Had Little borrowed Sino's stock prior to the time of computerization of the securities industry, Sino's physical shares would have been located in Manhattan.
Furthermore, the claims for defamation, tortious interference, and fraud against Little “arose out of” his business activities on his website, which offers services that are closely connected to Little's short selling scheme of Sino shares, among others.
In the alternative, argues Sino, the Court should order discovery regarding Little's domicile and business contacts with New York, since Sino has made a “sufficient start” towards establishing jurisdiction. And, additional facts, solely in Little's possession, exist regarding his internet activities but cannot be stated at this time. For example, Little has represented on his website alfredlittle.com that financial contributions enable him to continue with his activities on the website. Discovery as to the nature of the efforts to raise those funds in New York and location of the website's New York subscribers and contributors/site visitors would establish jurisdiction over Little.
The court also can exercise long arm jurisdiction over Little under CPLR 302(a)(2), since Little, through its agents, committed its fraudulent and tortious acts in New York. Furthermore, the exercise of personal jurisdiction over Little does not violate due process since Little's minimum contacts with New York exist. Alternatively, if the court grants Little's motion, SCEI will be left without a forum, and therefore without a remedy.
In reply, Little argues that short selling is not illegal; otherwise, half of the Wall Street would be named as defendants. Little denies that he ever resided in New York, and argues that “unsworn, fictionalized biographies” are hearsay and have no probative value for purposes of jurisdiction under CPLR 301. Little notes that biographies can be fictionalized, just like the pseudonym Alfred Little itself. Further, jurisdictional discovery is unwarranted because there are no essential jurisdictional facts which may exist but cannot now be stated. Little is neither “doing business” in New York for purposes of general jurisdiction, nor “transacting business” in New York for purposes of long-arm jurisdiction under CPLR 302(a)(1). None of the three transactions asserted by Sino can serve as a basis for jurisdiction. The website is accessible to anyone, anywhere; the trades between Little and unidentified brokers involve hypothetical trades through a back office in New York; and the PR Newswire press release is not about Sino, but about a different company in China.
Further, this suit is for defamation, even though Sino attempts to rebrand it to add claims for fraud and tortious interference. The complaint does not allege that Little distributed the allegedly defamatory reports to anyone in New York or transacted any business in New York in connection with the reports.
There is no evidence that Little's website, even if interactive, is directed at anyone in New York. Further, the defamation claim did not arise from the PR Newswire press release about a different company. PR Newswire's online welcome page indicates that it has worldwide offices, and the “Key Contacts” are two individuals with area codes in New Jersey; and Little resides in Shanghai. Sino offers no evidence as to which of those 40 offices dealt with Little in issuing the release, or that the release was targeted at New York residents. Discussion I. Personal Jurisdiction
The exercise of personal jurisdiction over a defendant must be both authorized by the CPLR and in accordance with “traditional notions of fair play and substantial justice” required by the Due Process Clause of the United States Constitution (International Shoe Co. v. State of Washington, 326 U.S. 310, 316 [1945] ). A court must view the jurisdictional allegations in a light most favorable to the plaintiff and resolve all doubts in its favor ( see Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414 [2001] ).
On a motion to dismiss, courts do not require that the plaintiff make a prima facie showing of personal jurisdiction. Rather, plaintiff must only demonstrate that facts “may exist” to exercise personal jurisdiction over the defendant ( see American BankNote Corp. v. Daniele, 45 A.D.3d 338, 340, 845 N.Y.S.2d 266 [1st Dept 2007]; Ying Jun Chen v. Lei Shi, 19 A.D.3d 407, 796 N.Y.S.2d 126 [2d Dept 2005]; CPLR § 3211[d] ). And, to the extent that, in opposition to a motion to dismiss, the plaintiff seeks disclosure on the issue of personal jurisdiction pursuant to CPLR § 3211(d) “the plaintiff [ ... ] only needs to set forth a sufficient start, and show that its position is not frivolous” (Peterson v. Spartan Indus., 33 N.Y.2d 463, 467 [1974];see Shore Pharm. Providers, Inc. v. Oakwood Care Ctr., Inc., 65 A.D.3d 623, 624, 885 N.Y.S.2d 88 [2d Dept 2009]; American BankNote Corp. v. Daniele, 45 A.D.3d 338, 340, 845 N.Y.S.2d 266 [1st Dept 2007] ).
A. CPLR § 301: Domicile or Presence
CPLR 301 provides that “[a] court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore.” When the domicile of a party, as here, is in doubt, its determination requires an evaluation of all the circumstances of the case, including “current residence; voting registration and voting practices; location of personal and real property; location of brokerage and bank accounts; membership in unions, fraternal organizations, churches, clubs, and other associations; place of employment or business; driver's license and automobile registration; payment of taxes. No single factor is conclusive” ( Wiest v. Breslaw, Not Reported in FSupp2d, 2002 WL 4139213B [SDNY 2002], citingWright, Miller & Cooper, Federal Practice & Procedure § 3612, at 529–31 [1984] )(footnotes omitted).
Here, Little asserts that he is not subject to the Court's general jurisdiction under CPLR 301 because he was not a resident or domiciliary of New York when this action was commenced, his current permanent residence is outside of the United States and he has not visited New York in the last 12 months (Little Affidavit, ¶¶ 10; 11, 12). Sino's assertions, however, that Little's statements on his website, www.alfredlittle.com, and on his LinkedIn profile, that he resides in New York and Shanghai, demonstrate that facts “may exist” to exercise personal jurisdiction over the defendant ( see American BankNote Corp. v. Daniele, supra; Ying Jun Chen v. Lei Shi, supra). Based on this factual conflict, the court cannot determine, at this juncture, whether the Court can exercise jurisdiction over Little pursuant to CPLR 301 based on his domicile. And in any event, plaintiff has set forth a “sufficient start, and show[ed] that its position is not frivolous” (Peterson v. Spartan Indus., 33 N.Y.2d 463, 467, 354 N.Y.S.2d 905, 310 N.E.2d 513,supra ).
The Court likewise cannot determine at this time whether Little is amenable to this forum's jurisdiction by virtue of “doing business” in this state (CPLR § 301). It has been held that “the fact that a foreign [entity] has a website accessible [in] New York is insufficient to confer jurisdiction under CPLR § 301” ( Haber v. Studium, Inc., 22 Misc.3d 1129(A), 881 N.Y.S.2d 363 (Table) [Sup Ct, New York County 2009], citing Spencer Trask Ventures, Inc. v. Archos, S.A., 2002 WL 417192 [SDNY 2002] ). It is also established that a “non-resident individual, like a corporation, can be deemed present for jurisdictional purposes by virtue of doing business' in this state, even as to causes of action unrelated to the business done within the state ” (Lancaster v. Colonial Motor Freight Line, Inc., 177 A.D.2d 152, 581, 581 N.Y.S.2d 283 N.Y.S.2d [1st Dept 1992], citing 283 ABKCO Industries, Inc. v. Lennon, 52 A.D.2d 435, 384 N.Y.S.2d 781 [1st Dept 1976] ).
Further, even assuming that Little was “doing business” with New York-based PR Newswire by subscribing to its paid “news and information distribution services for professional communicators,” it is unclear from the record, whether by so doing, Little engaged in continuous and systematic course of “doing business,” sufficient for purposes of CPLR § 301( Atlantic Veal & Lamb, Inc. v. Silliker, Inc., 11 Misc.3d 1072, 816 N.Y.S.2d 693 [Sup Ct Kings County 2006] citing Chamberlain v. Jiminy Peak, 176 A.D.2d 1109, 1110, 575 N.Y.S.2d 410 [3d Dept 1991] ).
Neither can the Court determine at this juncture whether there are any indicia of “doing business,” whether Little maintains office facilities or agents, telephone listings and/or bank or brokerage accounts in New York, whether he owns or leases any real property in New York, and “whether [he] has individuals permanently located in the state to promote its interests” ( Haber v. Studium, Inc, citing In re Ski Train Fire in Kaprun, Austria, 230 FSupp2d 376, 381–382 [SDNY 2002]; see also Adamowicz v. Besnainou, 58 A.D.3d 546, 872 N.Y.S.2d 47 [1st Dept 2009] ). Thus, the facts essential for the court's proper determination of the jurisdictional basis can only be determined after the close of limited, jurisdiction-based discovery (Sony Music Entertainment Inc. v. Does 1–40, 326 FSupp2d 556 [SDNY 2004][the court has discretion to allow discovery to determine the basis for personal jurisdiction], citing See Volkart Bros., Inc. v. M/V Palm Trader, 130 F.R.D. 285, 290 [SDNY1990] ).
Therefore, under the circumstances, Sino is entitled to disclosure limited to the issue of personal jurisdiction (CPLR § 3211[d] ), and the branch of Little's motion to dismiss for lack of jurisdiction under CPLR § 301 is denied, without prejudice to renew upon completion of discovery, as set forth below.
B. CPLR § 302(a)(1): Transaction of Business
CPLR 302(a)(1) provides that a court may exercise personal jurisdiction over a non-domiciliary who, in person or through an agent, “transacts any business” within the State, provided that the cause of action arises out of the transaction of business (Lebel v. Tello, 272 A.D.2d 103, 707 N.Y.S.2d 426 [1st Dept 2000] ). Under the statute, “proof of one transaction in New York is sufficient to invoke jurisdiction ... so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted” (Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 [1988] ). However, “jurisdiction is not justified where the relationship between the claim and transaction is too attenuated” (Johnson v. Ward, 4 N.Y.3d 516, 519 [2005] ).
For purposes of CPLR 302(a)(1) jurisdictional analysis, New York courts have held that mere defamatory utterances sent into the state are insufficient to satisfy the “transacting business” requirement (SPCA of Upstate New York, Inc. v. American Working Collie Association, 74 A.D.3d 1464, 903 N.Y.S.2d 562 [3d Dept 2010]; see Kim v. Dvorak, 230 A.D.2d 286, 659 N.Y.S.2d 502 [3d Dept 1997]; Gary Null & Assocs. v. Phillips, 29 Misc.3d 245, 248, 252, 906 N.Y.S.2d 449 [Sup Ct, New York County 2010] ). And, contacts which may support long arm jurisdiction for other causes of action are insufficient for a claim of defamation ( SPCA of Upstate New York, Inc. v. American Working Collie Association, supra ). Thus, “posting of allegedly defamatory material outside New York [about a New York resident] on a website merely accessible in New York, without more, does not provide a basis for jurisdiction over a non-domiciliary” for the purposes of CPLR § 302(a)(1) ( see SPCA of Upstate New York, Inc. v. American Working Collie Assn., 74 A.D.3d 1464, 903 N.Y.S.2d 562 (defendants were not subject to long-arm jurisdiction in a defamation action based on writings posted on their website)). Instead, to form a basis for jurisdiction, a nonresident's internet activity must be expressly targeted at or directed to the forum state to establish minimum contacts necessary to support the exercise of personal jurisdiction (Best Van Lines, Inc. v. Walker 490 F.3d 239 [2d Cir.2007] ).
The court finds that Little's website activities do not constitute “transaction of business” in New York within the meaning of section 302(a)(1).
There is no indication that Little's websites postings, which were merely accessible in New York, were expressly targeted at anyone in New York ( see Lenahan Law Offices, LLC v. Hibbs, 2004 WL 2966926, at *6 [WDNY 2004] (defendant's website permitting the defendant to answer questions posted by users had a low-level of interactivity and thus, was insufficient to support jurisdiction, absent an allegation that defendant projected himself into New York)). Here, Little's internet activities of maintaining a website with discussion threads and email subscription offering, posting responses and comments to the website users, who could download reports and files directly to their computers, are insufficient to support a necessary finding that Little purposefully and knowingly interacted with New York residents or otherwise targeted New York for business, “thus invoking the benefits and protections of [New York's] laws” (McKee Electric Co. Inc. v. Rauland–Borg Corp., 20 N.Y.2d 377, 382, 283 N.Y.S.2d 34 [1967],quoting Hanson v. Denckla, 357 U.S. 235 [1958] ). The record fails to indicate that Little purposefully transacted business via his or other websites with New York residents so as support the exercise of jurisdiction over Little.
Short Sale Transaction
Contrary to Sino's contention, the use of the DTCC, located in New York, without more, does not establish contacts with New York for purposes of conferring jurisdiction over Little.
DTCC, a holding company, is owned by many financial industry entities, including the New York Stock Exchange (Pet Quarters, Inc. v. Depository Trust & Clearing Corp., 559 F.3d 772, 777 [8th Cir2009] ). A “major clearinghouse,” DTCC is “a custodian for most stock and government debt securities issued in the United States” (In re Optimal U.S. Litigation, 813 F Supp 2d 351 [SDNY 2011]; In re Bernard L. Madoff Inv. Securities LLC, 424 B.R. 122 [Bkrtcy SDNY 2010] ). DTCC, through its wholly owned subsidiaries, DTC and NSCC, provides more securities settlement and clearing services than any other entity in the world ( Pet Quarters, Inc., supra; The Depository Trust & Clearing Corporation, http://dtcc.com/about/business/index.php).
“Until 1975 stock sales involved delivery of the physical stock certificates to the buyer, typically through a web of brokers and dealers. As trading volumes increased and systems for clearing and settling stock transactions multiplied, physical transfer of stock certificates became impractical” ( id ). Thus, Section 17A was added to the Securities Exchange Act of 1934, “to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities,' and to eliminate the physical movement of securities certificates among brokers and dealers” ( id. citing15 U.S.C. § § 78q–1(a)(2)(A)(i), (e)). “Under the new system, securities may be held directly through possession of a stock certificate or entry on the issuer's stock registry, or indirectly by acquisition of a security entitlement' from an intermediary such as a clearing company, bank, or broker dealer” ( id.., citingUCC § 8–101; Pet Quarters, supra ). “DTC is the nation's principal securities depository; its nominee Cede & Co. is the direct holder of stock certificates for all of its members which include most securities brokers and dealers in the country and NSCC. DTC's automated system tracks transfers of indirect security entitlement positions among its members, eliminating the need to transfer the physical stock certificates. NSCC provides centralized clearance, settlement, and information services for virtually all securities transactions in the United States. When a security's ownership changes hands, NSCC acts as the intermediary between buyer and seller” ( Pet Quarters, supra, at 776–777).
The DTC “tracks” the ownership of the commercial paper by maintaining “bookkeeping” entries in its computer system. “The DTC is used to process the flow of debits and credits associated with commercial paper payments and the retirement of the numbers associated with the commercial paper when it is redeemed. Thus, the DTC only provides a bookkeeping function for the flow of commercial paper” (In re Enron Creditors Recovery Corp., 407 B.R. 17 Bkrtcy. [SDNY 2009], reversed on different grounds, In re Enron Creditors Recovery Corp., 422 B.R. 423 [SDNY 2009] (stating that the DTC is “an entity created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making book-entry' changes to ownership of securities' ”)). The DTC was created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making “book-entry” changes to ownership of securities (In re Enron Creditors Recovery Corp., 407 B.R. at 18, fn. 2).
The Court's research has not uncovered cases supporting the proposition that short sales of a company's shares, which necessarily involve the use by the brokers of DTCC's services, confers jurisdiction on the short seller. However, New York courts have consistently held that “a corporation is not doing business' in the State for purposes of conferring jurisdiction because its shares are listed on a stock exchange requiring the incidental maintenance of bank accounts for dividend payments, stock transfer agents and stock registrars” ( see Gilson v. Pittsburgh Forgings Co., 284 F.Supp. 569, 71 [SDNY 1968]; Public Administrator of County of New York v. Odeco, Inc., 88 A.D.2d 543, 450 N.Y.S.2d 745 [1st Dept 1982]; Robbins v. Ring, 9 Misc.2d 44, 166 N.Y.S.2d 483 [Sup Ct, New York County, Special Term 1957]; see Joseph Walker & Sons v. Lehigh Coal & Navigation Co., 8 Misc.2d 1005, 167 N.Y.S.2d 632 [Sup Ct, New York County, Special Term 1957] ).
In Robbins v. Ring ( supra ) plaintiff claimed that defendant was “doing business” in New York because its stock was listed on the American Stock Exchange and its stock transfer agent was located in New York City. The court held that if plaintiff's contentions were accepted as meritorious, “almost every corporation would be subject to the jurisdiction of New York, without any other jurisdictional requirements.” Thus, court concluded that these financial arrangements, isolated and alone, are not sufficient to subject defendant to jurisdiction (9 Misc.2d at 45, 166 N.Y.S.2d 483).
The court's reasoning in Robbins is applicable here. DTCC, through one of its subsidiaries DTC, is the nation's principal securities depository, and a holder of stock certificates for most of the securities brokers and dealers in the country. Thus, if this Court accepts as meritorious plaintiff's contentions, almost every corporation would be subject to the jurisdiction of New York, without any other jurisdictional requirements.
While it is true, as Sino notes, that taking short positions in listed securities, arguably requires Little “to avail himself of the services of New York brokerage houses at which the stock can be located” (emphasis added), which settle the deals through the depository DTC, Little does not have direct contact with the DTCC, nor engaged “in such a continuous and systematic course of “doing business” as to warrant a finding of its presence in this State” (Laufer v. Ostrow, 55 N.Y.2d 305, pp. 309–311, 449 N.Y.S.2d 456 [1982] ). Little's use of the DTCC is merely incidental to his alleged short sale transactions, and are no more sufficient to establish the requisite contacts with New York than the incidental use of bank accounts for dividend payments, stock transfer agents and stock registrars found insufficient to confer jurisdiction noted above.
However, the court finds that Sino is entitled to jurisdictional discovery as to the location of Little's brokerage accounts in connection with the short sales of Sino stock at the relevant time ( cf. U.S. Commodity Futures Trading Comm'n v. Amaranth Advisors, L .L.C., 554 F Supp 2d 523, 530 [SDNY 2008] (non-domiciliary defendant personally placed orders by telephone through a New York Merchantile Exchange (N.Y.MEX) broker and directed traders under his supervision to place orders to trade natural gas futures on NYMEX)).
Notably, a number of courts have held that long-arm jurisdiction may be upheld where a defendant deals directly with the broker's New York office by phone, mail, or internet messaging system in a number of transactions instead of dealing with the broker at the broker's local office outside New York ( see State v. McLeod, 12 Misc.3d 1157(A), 819 N.Y.S.2d 213 [Sup Ct, New York County 2006], citing Courtroom Television Network v. Focus Media, Inc., 264 A.D.2d 351, 353, 695 N.Y.S.2d 17 [1st Dept 1999] (by opening and actively maintaining a brokerage account in New York, the account owner gains both the protection of New York's banking and securities trading laws, and access to New York's banks and securities markets); Siegel, N.Y. Prac § 86, at 152 [4th ed.] ). Indeed, both New York State and federal courts have held that actively maintaining a brokerage account constitutes “transacting business” within the statutory definition ( see e.g. Ehrlich–Bober & Co., Inc. v. University of Houston, 49 N.Y.2d 574 [1980] (defendant conducting 22 securities purchases—mainly by telephone—with New York brokerage firm); Deutsche Bank Securities, Inc. v. Montana Bd. of Investments, 21 A.D.3d 90, 797 N.Y.S.2d 439 [1st Dept 2005], affd, 7 N.Y.3d 65 [2006] (defendants' investment officer negotiated a single securities purchase with a New York-based bank via an internet instant messaging system); L.F. Rothschild, Unterberg, Towbin v. Thompson, 78 A.D.2d 795, 433 N.Y.S.2d 6 [1st Dept 1980] (non-domiciliary defendant, who only dealt with plaintiff securities broker by telephone and mail, sent 19 checks and securities to New York and conducted 25 transactions in four months); Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151 [2d Cir1999] (defendant maintained an “active account” with its New York-based securities broker and agreed to sell that broker various securities through that account); Newbro v. Freed, 337 F Supp 2d 428 [SDNY 2004] (defendants maintained a brokerage account in New York and traveled there for meetings with the broker)). The focus of a CPLR § 302 inquiry “is on what defendant ... did in New York in connection with the cause of action” ( State of New York v. McLeod, 12 Misc.3d 1157(A), citing PaineWebber Inc. v. Westgate Group, Inc., 748 F.Supp. 115, 119 [SDNY 1990] ).
As to the first prong, “transacting business” within the State, the court finds that under the particular facts of this case, Little cannot evade jurisdictional discovery regarding the location of his brokerage accounts and circumstances of the short sale of Sino stock transactions by simply claiming that he was nowhere near New York when the subject transactions were consummated ( see Deutsche Bank Securities, Inc. v. Montana Bd. of Investments, 21 A.D.3d 90, 797 N.Y.S.2d 439 [1st Dept 2005[ (contacts occurred through the Bloomberg Messaging System which allowed defendant very purposefully to negotiate a bond deal with this New York plaintiff without having actually to set foot in New York)).
And, assuming that Little's alleged defamatory reports about Sino arguably precipitated the price drop in Sino shares, the defamation claim “arose from” the subject short sale transaction(s). Such would satisfy the second prong of the test under CPLR 302(a)(1).
Thus, taking into consideration the unique circumstances of this action, the Court grants Sino limited discovery, solely for jurisdictional purposes, on the issue of the location of the brokerage accounts used by Little in connection with the short sales of Sino shares.
CPLR 302(a)(2): Tortious Act Within the State
Section 302(a)(2) provides jurisdiction over a person who “commits a tortious act within the state” unless the act is one of defamation (CPLR § 302(a)(2)). Generally, to obtain jurisdiction under this section, the defendant must be physically present within New York while committing the tort (Seldon v. Direct Response Technologies, 2004 WL 691222 [SDNY 2004] ). Sino's complaint alleges that Little committed the torts of defamation, fraud and tortious interference with business relations. As noted, defamation is expressly excluded from the New York's § 302(a)(2) long-arm statute (Gary Null & Associates, Inc. v. Phillips, 29 Misc.3d at 248, 906 N.Y.S.2d 449,supra [“Defamation actions are expressly exempted from CPLR 302(a)(2) and (3), so the only provision at issue in this case is CPLR 302(a)(1), which requires defendant Phillips to transact business within the state, and the defamation claim to arise from his transaction of that business”] ).
Furthermore, courts are also instructed to decline jurisdiction over claims that attempt to avoid the requirements of New York's long-arm statute by merely restating a defamation claim under a different name ( see Findlay v. Duthuit, 86 A.D.2d 789, 790, 446 N.Y.S.2d 951, 953 [1st Dept 1982] ). With respect to plaintiff's other causes of action, none of these claims arise from tortious acts that were physically performed by defendant within New York. As noted above, all of defendant's activities consisted of online postings regarding plaintiff, and there is no evidence that any of the postings occurred within New York. As such, they do not constitute torts committed within the state for purposes of section 302(a)(2) (see Ahava Food Corp. v. Donnelly, 2002 WL 31757449 [SDNY 2002] ). Neither did Sino establish jurisdiction based on the emails sent to the auditor company Weinberg and the independent director Levinson, since there is no showing that the emails were sent to New York. Accordingly, there is no basis for jurisdiction under section 302(a)(2).
Sino does not assert jurisdiction based on CPLR § 302(a)(3)(tortious acts committed outside New York that cause injury within the state).
Conclusion
Based on the foregoing, it is hereby
ORDERED that the branch of the motion of defendant Alfred Little (appearing pseudonymously), pursuant to CPLR 3211(a)(8), to dismiss plaintiff Sino Clean Energy Inc.'s complaint for lack of personal jurisdiction, is granted to the extent that the Court finds that CPLR § § 302(a)(2), and (a)(3) do not provide a basis for jurisdiction over the defendant Alfred Little, and denied, without prejudice to renew upon the completion of jurisdictional discovery, as to personal jurisdiction based on CPLR 301 and CPLR 302(a)(1); and it is further
ORDERED that plaintiff Sino Clean Energy, Inc., shall conduct discovery on the issue of personal jurisdiction based on CPLR 301 and CPLR 302(a)(1); and it is further
ORDERED that the parties' counsel shall appear at Part 35, Room 438, on June 4, 2012, at 2:30 p.m., for an in-court conference for the purpose of scheduling jurisdictional discovery; and it is further
ORDERED that the defendant shall serve a copy of this order with notice of entry upon plaintiff's counsel within 20 days of entry.
This constitutes the decision and order of the Court.