Opinion ID: 602843
Heading Depth: 2
Heading Rank: 1

Heading: Personal Jurisdiction Under New York Law

Text: 12 Personal jurisdiction over Petra Bank in this diversity action is governed by New York law. The district court rejected each of the three grounds A.I. Trade posited for jurisdiction: (1) transacting business in the state under CPLR 302(a)(1); (2) doing business in the state under CPLR 301; and (3) quasi in rem jurisdiction. See N.Y.Civ.Prac.L. & R. 301, 302 (McKinney 1990). We conclude that jurisdiction exists for this dispute on a fourth ground, raised on appeal, and hold that Petra Bank is amenable to suit under CPLR 302(a)(1) because it contracted to supply services in the state. 13 CPLR 302(a)(1) confers jurisdiction over any non-domiciliary who transacts any business within the state or contracts anywhere to supply goods or services in the state, so long as the cause of action arises from that contract. A.I. Trade argues that Petra Bank's guaranty payable in New York is a contract for services in New York within the meaning of CPLR 302(a)(1). Although it appears that the district court was not given the opportunity to consider this argument, we may in our discretion do so. Arguments made on appeal need not be identical to those made below if they involve only questions of law and additional findings of fact are not required. Vintero Corp. v. Corporacion Venezolana de Fomento, 675 F.2d 513, 515 (2d Cir.1982). The parties have fully briefed the existence of contracts anywhere jurisdiction, and no new or additional findings are needed to consider it. Thus we may resolve whether Petra Bank's guaranty of promissory notes payable in New York constitutes a contract to supply services in New York. 14 In 1970, the New York Court of Appeals declined to assert jurisdiction over a non-domiciliary guarantor under the transacts any business language of CPLR 302(a)(1) on the ground that payment of a guaranty in New York was not a transaction of business within the state. Ferrante Equip. Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280, 284, 258 N.E.2d 202, 205, 309 N.Y.S.2d 913, 917 (1970). By a 1979 amendment, the jurisdictional language at issue here (the contracts anywhere clause) was added to CPLR 302(a)(1), extending long-arm jurisdiction to non-domiciliaries who make contracts to be performed in New York and then fail to perform. Since then, the New York Court of Appeals has not addressed the jurisdictional significance of a payment guaranty under the contracts anywhere language. Nor have we yet considered this precise issue. 15 A majority of lower New York courts have concluded that a non-domiciliary's guaranty is a contract to supply services in New York that supports the assertion of personal jurisdiction. See Rielly Co. v. Lisa B. Inc., 181 A.D.2d 269, 586 N.Y.S.2d 668 (3d Dep't 1992) (Pennsylvania corporation's guaranty to be performed in New York alone sufficient to confer jurisdiction); Fashion Tanning Co. v. Shutzer Indus., 108 A.D.2d 485, 489 N.Y.S.2d 791 (3d Dep't 1985) (Massachusetts defendant's guarantee of payment in New York fell within scope of CPLR 302(a)(1)); see also Culp & Evans v. White, 106 Misc.2d 755, 435 N.Y.S.2d 248 (N.Y.Sup.Ct.1981) (personal guaranty to secure the performance of a construction contract in New York fell within scope of supplying services in New York); Wong v. Slotkin, 585 N.Y.S.2d 986, 989 (N.Y.Civ.Ct.1992) (Michigan father's guaranty of son's performance of lease for New York condominium sufficient to establish jurisdiction). But see First Nat'l Bank & Trust Co. v. Wilson, 171 A.D.2d 616, 567 N.Y.S.2d 468, 469 (1st Dep't 1991) (execution in Texas of limited guaranties payable to New York corporation did not confer jurisdiction over guarantor); Waldorf Assocs. v. Neville, 141 Misc.2d 150, 533 N.Y.S.2d 182, 185 (N.Y.Sup.Ct.1988) (California defendant's guarantee of payment in New York is not the provision of a service within the state), aff'd mem., 155 A.D.2d 283, 547 N.Y.S.2d 556 (1st Dep't 1989). 16 Most of the federal district courts in New York that have applied CPLR 302(a)(1) in diversity actions have construed the amended statute to bring a payment guaranty within the compass of performing services in New York. See Key Bank of New York, N.A. v. Patel, 796 F.Supp. 674 (N.D.N.Y.1992); Lone Star Indus. v. Chieftain Cement Corp., 795 F.Supp. 87 (W.D.N.Y.1992); Chase Manhattan Serv. Corp. v. National Business Sys., Inc., 766 F.Supp. 203 (S.D.N.Y.1991); Bankers Trust Co. v. Nordheimer, 746 F.Supp. 363 (S.D.N.Y.1990); Manufacturers Hanover Leasing Corp. v. Ace Drilling Co., 720 F.Supp. 48 (S.D.N.Y.1989); Gaines Serv. Leasing Corp. v. Ashkenazy, 635 F.Supp. 805 (E.D.N.Y.1986); Chemco Int'l Leasing, Inc. v. Meridian Engineering, Inc., 590 F.Supp. 539 (S.D.N.Y.1984). 17 We predict that the New York Court of Appeals would construe a financial guaranty payable in New York as a contract to perform services within the meaning of CPLR 302(a)(1). Cf. Armada Supply Inc. v. Wright, 858 F.2d 842, 849 (2d Cir.1988) (contracting to insure property located within a jurisdiction, even if the presence of that property is transitory, subjects a foreign marine-insurer to jurisdiction on suits over such insurance). Nothing suggests that CPLR 302(a)(1) as amended excludes from its coverage the provision of financial services. Cf. Chemco Int'l Leasing, 590 F.Supp. at 543 (no meaningful distinction between guaranteeing performance of a construction contract and guaranteeing payment of money, since in most cases a judgment cannot be made to require a defendant to specifically perform an obligation, but only to make payment of money damages). Accordingly, Petra Bank's aval on a promissory note payable in New York is a contract to provide a service in New York that subjects Petra Bank to New York's long-arm jurisdiction in connection with claims arising out of that contract. 18 That Petra Bank gave its guaranty in the context of a forfaiting transaction and in the form of an aval raises an additional question: whether an avalizing bank is more closely analogous to a primary obligor than to a guarantor. Courts applying 302(a)(1) to the underlying original obligation to pay money and courts applying 302(a)(1) to a guaranty have treated them differently. Some courts have held that a primary obligor's agreement to designate New York as the place of payment of its debt does not transform the debt into a contract to perform services in New York for jurisdictional purposes. See Glass v. Harris, 687 F.Supp. 906, 908 (S.D.N.Y.1988) (Louisiana defendants were not subject to personal jurisdiction in New York suit on promissory note payable in New York); American Recreation Group, Inc. v. Woznicki, 87 A.D.2d 600, 448 N.Y.S.2d 51, 52 (2d Dep't 1982) (agreement to pay promissory note in New York is not a contract to supply goods or services in the state). But see First City Fed. Sav. Bank v. Dennis, 680 F.Supp. 579, 584 (S.D.N.Y.1988) (note payable in New York conferred jurisdiction where it provided that New York law applied and defendant authorized an agent in New York to help procure loan); Catalyst Energy Dev. Corp. v. Iron Mountain Mines, Ins., 630 F.Supp. 1314, 1316 (S.D.N.Y.1986) (note payable in New York conferred jurisdiction where it provided that New York law applied, borrower directed loan proceeds to be paid into borrower's New York account and borrower made numerous communications to New York). 19 Here, Petra Bank is acting as a guarantor, not as a primary obligor. Although A.I. Trade sponsored an affidavit of forfaiting expert D. Ian Guild that describes an aval as placing the guarantor in the place of the original obligor, counsel for Petra Bank conceded at oral argument that the aval does not operate as a novation releasing the primary obligation. A.I. Trade apparently may still pursue the primary obligor, Nissilios, for satisfaction of the debt, and is in fact doing so. 20 Petra Bank argues that the place of payment of the Notes was a fortuity lacking jurisdictional significance, because the Notes were made in Jordan by a Greek company, payable to a Swiss company, and because those parties (rather than Petra Bank) designated New York as the place of payment. Petra Bank's argument mischaracterizes the nature of forfaiting in general and this forfaiting transaction in particular. From the outset of the negotiations, Nissilios and Welfin contemplated involvement of a forfaiter to finance the deal. The evident financial objective of forfaiting is to convert a dubious undertaking into a bankable obligation. One way of doing that is to make the guaranteed obligation payable in a world financial capital. Once A.I. Trade became involved, the success of the transaction--and the payment of Petra Bank's fee--depended on its terms being acceptable to this New York-based forfaiter. Delivery of the Notes occurred in New York and the net proceeds owing on the Notes were deposited to a New York bank account maintained by Petra Bank for that purpose. The record supports the view that A.I. Trade wanted the payment obligation and the guaranty to be performed in New York. On this record, it cannot be said that payment in New York was an incidental or fortuitous aspect of the transaction. 21 According to Petra Bank, the contracts anywhere language of CPLR 302(a)(1) encompasses a guaranty payable in New York only if the guaranty is payable to a New York resident. Since the record indicates that A.I. Trade, a New York-based firm, was involved in the transaction at an early date and may be regarded as the recipient of the guaranty, we need not consider Petra Bank's claim that contracts anywhere jurisdiction is available only to New York residents. 22 Petra Bank also contends that payment in New York lacks contractual significance because forfaited notes trade freely in a secondary market (and in fact three of the Welfin Notes were subsequently conveyed to European financial institutions). On balance, the existence of a secondary forfaiting market supports the assertion of jurisdiction here. Forfaiting is most common for transactions involving marginal firms located in developing countries or in what was the Soviet bloc. The Welfin Notes were made payable in New York in part to make them more marketable, an important feature of any negotiable instrument. In such transactions, the guaranty of payment in a financial capital would seem to be a real comfort to the forfaiter. In any event, this appeal is concerned with the three Welfin Notes retained by A.I. Trade. We do not decide whether jurisdiction over Petra Bank would be appropriate if this action had been brought by a subsequent foreign purchaser of the other three Welfin Notes.