Credit Lyonnais Sec. v. Alcantara and Cavelba, Docket No. 98-7783

• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-7783
• Citation: 183 F.3d 151
• Parties: (2nd Cir. 1999) CREDIT LYONNAIS SECURITIES (USA), INC., Plaintiff-Appellee, v. RAFAEL ALCANTARA and CAVELBA, S.A., doing business as Casa De Bolsa RAFAEL ALCANTARA V., Defendants-Appellants
• Court: U.S. Court of Appeals — Second Circuit

Page 151

183 F.3d 151 (2nd Cir. 1999)

CREDIT LYONNAIS SECURITIES (USA), INC., Plaintiff-Appellee, v. RAFAEL ALCANTARA and CAVELBA, S.A., doing business as Casa De Bolsa RAFAEL ALCANTARA V., Defendants-Appellants.

Docket No. 98-7783

August Term, 1998

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Argued February 24, 1999.

Decided July 09, 1999.

Defendants, a Venezuelan securities firm and its chief executive officer, appeal from a default judgment entered in the United States District Court for the Southern District of New York (Schwartz, J.) in favor of plaintiff, a New York-based securities broker, ordering defendants to pay funds allegedly due plaintiff upon certain securities transactions. The district court denied defendants' motion to dismiss the action for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2). The Court of Appeals, Leval, J., vacates and remands because the district court failed to make the required factual inquiry as to whether defendants were subject to the court's jurisdiction.

CLINTON B. FISHER, New York, N.Y. (Todd L. Schleifstein, Haythe & Curley, New York, N.Y., Of Counsel), for Plaintiff-Appellee.

WALTER DROBENKO, Drobenko & Piddoubny, Astoria, N.Y., for Defendants- Appellants.

Before: LEVAL, POOLER and HEANEY,^*. Circuit Judges

LEVAL, Circuit Judge:

Defendants appeal from a default judgment of the United States District Court for the Southern District of New York (Schwartz, J. ), sitting in diversity and applying New York law, in an action to recover amounts allegedly owed by defendants as a result of certain securities transactions. The district court denied defendants' motion to dismiss for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2), finding that the facts alleged in the complaint, if true, were sufficient to confer personal jurisdiction over the Venezuelan defendants under New York's long-arm statute. Without making findings as to the truth or falsity of plaintiff's jurisdictional allegations, the district court went on to grant plaintiff's motion for a default judgment in the amount of $378,993 pursuant to Fed. R. Civ. P. 55(a). Because the court failed to determine whether the defendants had in fact done what was alleged in the complaint - thereby subjecting themselves to the jurisdiction of the New York courts - we vacate the judgment and remand.

BACKGROUND

Plaintiff Credit Lyonnais Securities USA, Inc., is a New York-based securities and investment banking firm. Defendant Cavelba S.A. is a Venezuelan securities firm based in Caracas, Venezuela. Defendant Rafael Alcantara, a resident of Caracas and a Venezuelan national, is Cavelba's Chief Executive Officer and principal stockholder.

On August 9, 1996, plaintiff filed the instant suit in the district court. The complaint alleged the following. Since 1991 the defendants had engaged in numerous securities and arbitrage transactions with plaintiff, and had maintained an account with plaintiff for that purpose. Between approximately December 14, 1993 and February 4, 1994, defendants contracted to sell plaintiff specified shares of stock at an aggregate price of $449,656.50. Plaintiff then contracted to sell these securities to third parties. Defendants failed to deliver the securities.

The market for the securities defendants had failed to deliver increased. To cover the short positions in defendants' account, plaintiff paid $714,072.29. It debited defendants' account in the amount of $264,415.79 - the difference between the buy-in price and the contract price. After defendants failed to comply with plaintiff's numerous demands for payment, plaintiff brought suit.

When defendants failed to file an answer, plaintiff moved for a default judgment pursuant to Fed. R. Civ. P. 55, and the court signed an order to show cause as to why default should not be entered. Defendants opposed the motion for a default judgment and cross-moved to dismiss for lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2). In their moving papers, defendants asserted that for the entire time period during which plaintiff claimed the transactions took place, beginning on November 5, 1993, Cavelba was enjoined by the Venezuelan courts from doing business, its offices were closed, its membership on the Caracas stock exchange suspended, and its assets frozen. Alcantara asserted that he was in jail from December 17, 1993 until May 2, 1994, when the charges against him were found to be without merit and his assets returned to him. An affidavit of defense counsel asserted that while defendants had sold securities to plaintiff in the preceding years, between November 5, 1993 and June 22, 1994, defendants "did not sell any securities to the plaintiffs or any other person or entity anywhere in the world."

By written opinion dated April 28, 1998, the court denied defendants' motion to dismiss and granted plaintiff's motion for a default judgment. The court awarded damages in the amount of $378,993 - the amount of plaintiff's claim plus interest and costs. This appeal followed.

DISCUSSION

Because the court failed to conduct the necessary factual inquiry as to whether it had personal jurisdiction over defendants, we vacate the judgment and remand for further proceedings.

Motions to dismiss under Rule 12(b)(2) may, in part, test plaintiff's theory of jurisdiction and, in part, test the facts supporting the jurisdictional theory. District courts are afforded "considerable procedural leeway" in deciding them. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). In ruling on the theory of jurisdictional allegations, the court may provisionally accept disputed factual allegations as true. In making such a ruling, the court need only determine whether the facts alleged by the plaintiff, if true, are sufficient to establish jurisdiction; no evidentiary hearing or factual determination is necessary for that purpose. See id.

We find no error in Judge Schwartz's conclusion that plaintiff's allegations, if true, satisfy the jurisdictional requirements of New York's long-arm statute, N.Y.C.P.L.R. § 302(a)(1). The statute permits a court to exercise jurisdiction over a non-domiciliary defendant if 1) the defendant "transact[s] business" in New York, and 2) the cause of action arises out of that business activity, such that an "articulable nexus" exists between them. See CutCo Indus., Inc. v. McNaughton, 806 F.2d 361, 365 (2d Cir. 1986) (citing McGowan v. Smith, 52 N.Y.2d 268, 272 (1981)). A defendant transacts business in New York when he "purposefully avails" himself of the privilege of conducting business there, thus invoking the benefits and protections of New York law. See McKee Elec. Co. v. Rauland-Borg. Corp., 20 N.Y.2d 377, 382 (1967). Plaintiff alleged that defendants held an "active account" with plaintiff's firm in New York beginning in 1991, and that they agreed to sell plaintiff various securities through that account in a series of transactions in 1993 and 1994 that are the basis of the suit. We agree with the district court that these facts, if true, would be sufficient to establish personal jurisdiction over defendants under § 302(a)(1). See Picard v. Elbaum, 707 F. Supp. 144, 147 (S.D.N.Y. 1989) (citing Ehrlich-Bober & Co. v. Univ. of Houston, 49 N.Y.2d 574 (1980)); L.F. Rothschild v. Thompson, 433 N.Y.S.2d 6 (1st Dep't 1980).

Although the allegations of the complaint may be deemed true to test the jurisdictional theory of the complaint, defendants here challenged not only the theory but also the facts on which jurisdiction was predicated. While a court may initially deny such a motion to the extent it attacks the plaintiff's theory of...